Establishes an annual spending growth cap and increases the maximum capacity of the rainy day fund

* New SFL § 244 sets for definitions for article 17.

* New SFL § 245 establishes a spending cap, which limits the growth of state operating funds spending to no more than the average rate of inflation of the three previous calendar years. In addition, the section requires the governor to certify that the executive budget is consistent with the cap and the comptroller will provide, within five days of action by the Legislature upon the budget, a determination as to whether the state budget as enacted exceeds the annual spending growth cap. Finally, the section provides that if the Comptroller finds that the state budget as enacted exceeds the annual spending growth cap, the Governor must take corrective action, such as a veto, reducing state agency spending within the control of the Executive or working with the Legislature to enact spending reductions, to ensure that funding is limited to the amount of the annual spending cap.

* New SFL § 246 provides that upon a finding of an emergency by the Governor, he or she may declare an emergency b executive order. Based upon such declaration, the Governor may submit and the Legislature may authorize by a two-thirds super majority a budget containing a percentage increase in state operating fund spending over the prior fiscal year that exceeds the annual spending growth cap.

Section 2 of the bill would increase the maximum capacity of the state's rainy day reserve from 3 percent of General Fund spending to 10 percent of General Fund spending.

Section 3 would make the act effective immediately.

Existing law

SFL §92-cc (2) establishes a maximum balance in the rainy day reserve fund of three percent of the aggregate amount projected to be disbursed annually from the General Fund.

Justification

State government spending has grown substantially in recent years - especially in good economic times. Such growth has forced the State to take drastic actions to stabilize its finances when revenues decline dramatically during periods of economic difficulty.

For example, from 2002-03 to 2007-08, State Operating Funds spending grew from $52.8 billion to $77.0 billion -- an average annual rate of7.86 percent. In great part due to this dramatic expansion in spending, the State needed to address a nearly $20.1 billion deficit during last year's budget process.

To end this pattern of boom and bust cycle budgeting, and impose greater fiscal discipline on state government, this legislation would enact a strict cap limiting the growth of State Operating Funds spending. It also significantly increases the maximum capacity of the State's rainy day reserve so that surpluses that accrue as a result of this cap can be used to help address revenue declines during times of economic difficulty.

If the cap proposed in this legislation had been in place from 2002-03 to 2007-08, average annual spending growth during that period would have averaged 2.6 percent. Additionally, 2007-08 State Operating Funds spending would have totaled $60.0 billion - $17.0 billion lower than actual results.

Legislative history

New bill.

Fiscal implications

In 2010-11, it is expected that the cap would limit State Operating Funds spending to no greater than $80.4 billion, which reflects an increase of $1.7 billion or 2.1 percent from the prior year. This capped spending level would be $2.2 billion below the most recent current law estimates of State Operating Funds spending for 2010-11 ($82.6 billion, an increase of $3.9 billion of 5.0%) projected in the Division of the Budget's financial plan.

Local fiscal implications

The fiscal impact on local governments would depend upon policy choices made during the budget process in order to comply with the cap.

Effective date

30 days after it shall have become law.