The budget agreement announced today by legislative leaders and the Governor includes some $1.060 billion in additional revenue above what was certified by the Board of Equalization in February as available for the budget. This includes $200 million in transportation bonds, along with $153 million more in one-time funding diverted from state and county transportation funds. However, only $65.9 million is slated to come from the state’s Rainy Day Fund. The Legislature is opting to leave the Fund with a balance of $243 million, all of which could be appropriated this legislative session.

The Constitution (Article X, Section 23) allows the Fund to be spent in three main ways:

  • Up to three-eighths to make up for a shortfall in the current year’s collections.
  • Up to three-eighths if General Revenue collections for the upcoming year are forecast to be less than the current year’s collections.
  • Up to one-fourth through the appropriations process for an emergency.

RDF-May2016

After $150 million was used from the Rainy Day Fund last year, the Fund had a balance of $385 million at the start of  this year. With the state’s two successive revenue failures, a full 3/8th could have been appropriated as FY 2016 supplementals to soften the budget cuts for particular agencies. In March, the Legislature approved supplementals of $51 million for common education and $27.6 million for Corrections. The remaining $66 million went unspent, even in the face of deep and painful cuts enacted by the Department of Mental Health and Substance Abuse Services, Department of Human Services, and other agencies.

It now appears that of the remaining $308 million in the RDF, less than one-quarter will be used for FY 2017, even as the budget enacts deep and harmful cuts to many state agencies. Given the likelihood that the state is unlikely to make a quick exit from the current downturn, there is a strong case to be made for caution in depleting the Rainy Day Fund. However, the Fund’s rules mean that there is a real chance that the lion’s share of the Fund could not be used next year should revenues meet projections (no current year revenue failure) and should FY 2018 revenue projections exceed FY 2017 by even a small amount (no forthcoming year shortfall). Only the portion available upon declaration of an emergency would be available to help bolster the FY 2018 budget.

Over the final three days of session, we are likely to hear strong appeals for additional funding from those affected by continued cuts to state services, especially in the areas of mental health, human services, and higher education. Allocating a share of the $176 million that the Constitution makes available for addressing forthcoming year shortfalls and for emergencies makes sense and should get legislators’ strong consideration.