But California needs 500 percent.
Governor Jerry Brown’s 2018–19 budget proposal prudently calls for filling the state’s Rainy Day Fund to its constitutional capacity of $13.5 billion. Doing so will “soften the magnitude and length” of budget cuts occasioned by the next recession, of which Brown reminds us there have been ten since World War II.
“Soften” is the key word. That’s because Brown reminds us that “a moderate recession will drop state revenues by over $20 billion annually for several years.” In reality, a $13.5 billion RDF will likely provide less than 20 percent of the protection needed during that recession, as explained here. For full protection, California needs more than $60 billion in its RDF, and the required level of protection grows every year. That’s because the state is adding retirement obligations and health care entitlements, as explained here and here.
To protect citizens, legislators should create a $60 billion RDF, reduce spending on employee retirement and healthcare, or ask voters to approve a tax system that produces less volatile revenues, or some combination of the three options. Reducing spending on employee retirement requires reducing future benefits for current employees and retirees and truthful funding of new retirement promises. Reducing spending on healthcare requires obtaining greater healthiness for patients, not just greater wages and profits for healthcare providers, out of the money the state is spending on its single payer system, Medi-Cal. A tax system less reliant on capital gains would produce less volatile revenues.
California’s state legislators have the power to protect citizens and taxpayers from volatile tax revenues.