In 2014, voters passed an initiative that forced lawmakers to save money in flush years. It turns out that California’s budget reserves are approaching a point to where the state, by law, can’t save any more money. The state is on pace to fill the reserves with $13.5 billion by July 1, 2019, but some believe the fund might be filled before that projected date. The fund can only legally hold 10 percent of the state’s projected general fund revenue, so that it can be used as a hedge against the cuts that would come in a recession. After the fund is filled, any additional revenue has to be spent on infrastructure. Legislative Analyst Mac Taylor told senators this month,
[The money] will be there for you do whatever you want to do with it, build reserves, tax cut, whatever you want to do. It’s important to take a moment to enjoy these times budgetarily speaking. They don’t get much better than this.
The Legislature will have to decide what to do with the fund if it gets closer to its limit. One option would be to give California taxpayers a rebate that could be made possible through a 1979 ballot initiative that is known as the Gann limit, which compels the state government to return money to taxpayers if state spending exceeds certain thresholds. Another option is that legislators could put an initiative before voters to raise the cap so that more money can be saved. Legislators may decide to use the funds to take on the pension problem, due to the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) owing tens of billions of dollars more than they have on hand. The fund could also be used for infrastructure, but we will have to wait and see what legislators will do if the projections are correct and the fund gets over filled.