Assembly Budget Subcommittee No. 7 on Accountability and Oversight

Good morning, and welcome to the Assembly Budget Subcommittee on Accountability and Oversight. Today's hearing will consider ACA 20, a proposal to change the Budget Stabilization Account, also known as the Rainy Day Fund, and that we will take up on the floor tomorrow. This measure reflects conversations started in this subcommittee in 2024 by the prior Chair, Assemblymember Valencia, who's here with us today. We built upon that hearing with comprehensive hearing last year that considered input from a variety of stakeholders and thoughts from the LAO.

And now it's really exciting to see this tangible proposal coming out of this important oversight work from the committee.

Today, we'll consider how to fix one of the most frustrating features of California's constitution, the limitation on our ability to save enough funding in our reserves to help the state weather economic downturns. As we face the exciting possibility that public offering of stock for companies like SpaceX, OpenAI, and Anthropic may provide the state with historic one time windfalls of revenue, we have an opportunity to position the state to set aside some of these funds for the future.

When I joined the legislature in December 2022, five months after the legislature had passed a budget with a $100 billion historic surplus, but that budget only increased the rainy day fund by $3 billion in 2223. I remember asking in new member orientation, why didn't we put more money in reserves, to protect ourselves against downturns in the future? It seemed obvious to me that given the volatility that we had just experienced in the pandemic that we needed to better prepare for the future.

At last year's hearing, we we heard from an array of fiscal experts that the state needed to build greater levels of reserves, but that key governance challenges presented us from building those reserves. We're gonna have a conversation today about how to solve that problem in a common sense bipartisan fashion, I hope. We're today, we're joined by our extraordinary budget Chair, Mister Jesse Gabriel, who has authored ACA 20, which will present to the voters the opportunity to fix our reserves to better save for the future.

Mister Gabriel, please present your measure.

Yeah. Thank you, very, very much, Mister Chair, for that kind introduction and for all of your work. And I'm very pleased today to be here with my joint author, Mister Valencia, to present ACA 20, which would strengthen and modernize our rainy day fund to help the state better prepare for economic uncertainty and protect future generations of Californians.

Known as the Safer California Futures Act, ACA 20 is premised on the common sense principle that has guided generations of California families that we should set aside savings during good times to prepare for downturns and unexpected challenges, and it is informed by the wisdom and guidance of fiscal experts and our friends at the LAO. Before I discuss the merits of the proposition, I would like to begin today with some important acknowledgments.

And I first wanna thank speaker Rivas, who has been a steadfast supporter of responsible budgeting and who has worked to elevate this issue. I wanna thank my joint author, Assemblymember Valencia, who's been an early and vocal champion of strength in our reserves since he came to the legislature. So thank you, Assemblymember. I wanna thank you, Mister Chairman.

As you mentioned, the work of you and your subcommittee has been very, very important in bringing us to this moment, and I wanna thank you for facilitating the conversations and the inquiry that has really helped to shape and inform this proposal.

I also wanna thank Governor Newsom and our partners in the Senate. This effort has truly been a collaborative process, and I'm proud to present to you today a product of negotiations that were centered on good government, on fiscal planning, and on responsible budgeting.

And that is that was a conversation that I was really honored to be a part of, and, of course, wanna thank our friends at the LAO and the Department of Finance who helped to ground those conversation in facts and data, and who have informed and shaped this proposal with their wisdom and insights. And finally, I would be remiss if I didn't speak, acknowledge, an individual behind me, Jason Sisney, speaker Rives' budget director, and as well as his colleague Chris Woods.

Mister Sisney's personal passion for this work predates, and his work on this issue predates the tenure of virtually every member of the legislature.

And so I just wanted to thank him for, for the insight and guidance that has brought us to this day. Colleagues, over the past few years, and especially since I have become Budget Chair, we have been forced to navigate turbulent waters. We have all done that together, and we have faced a bevy of challenges, some of them expected, many of them unexpected, and we that has forced us to consider a lot of difficult trade-offs and to make some very difficult decisions.

And what I one of the things I'm most proud of is that the legislature has not shied away from those challenges. We have repeatedly stepped up to meet the moment with resolve, with empathy, and with a deep commit, commitment to budgeting that is both compassionate and fiscally responsible.

But even as we have grappled with the current budget challenges in front of us, I have often thought about how we might strengthen our budget process with an eye towards future generations of Californians and future generations of legislators. Simply put, how can we put the state on stronger financial foundation and better protect the essential programs and services so many of our communities rely on? And in my view, ACA 20 is an essential part of that solution. And here's why.

While California's economy is among the largest and most dynamic in the world, something that we are all very proud of, it is also particularly susceptible to economic cycles and fluctuations in revenue.

And as we have heard repeatedly from our friends in the LAO, California ranks near the very top of all states in revenue volatility. At the same time, as we have all, painfully and personally witnessed over the past few years, natural disasters, public health emergencies, political instability, foreign wars, and crises, and other or other other unforeseen events can place significant strain on our state budget.

When state revenues decline, insufficient reserves can force difficult choices that may disrupt essential programs and services relied upon by families, by students, by seniors, by veterans, by workers, and by businesses. On the contrary, when we build and maintain strong budget reserves during periods of economic growth that helps protect Californians from sudden reductions in essential services and reduces the need for drastic corrective actions during periods of fiscal stress.

So just like California families save for emergencies and unexpected expenses, our state government should follow the same common sense principle and save during good years to protect schools, public safety, and essential services.

Indeed, as we have all witnessed, maintaining sufficient reserves help ensure that essential public services remain available when they are needed most. Strong reserve policies promote fiscal stability, they improve public confidence in state government, and they support long term economic growth. And ACA 20 proposes to do exactly that by strengthening and modernizing California's rainy day fund. In particular, this measure would do four things. It would increase the maximum size of the rainy day fund from 10% of general fund revenues to 20% of general fund revenues.

It would increase the size of mandatory deposits into the rainy day fund in areas where the state experiences especially strong growth. It would clarify that the gain limit applies to withdrawals from rather than deposits to the rainy day fund, and it would update the list of eligible debt repayments to clarify that the rainy day fund can be used for budget loans, propositions, and federal debt for unemployment insurance.

Taken together, these changes will strengthen the state's commitment to responsible budgeting, to long term financial planning, and to prudent savings, and will ensure that the state is better prepared for future economic challenges. And colleagues, it does so in demeanor that fully protects Proposition 98 and our constitutional guarantee of funding for schools and community colleges. Finally, as a father of three young, rambunctious Californians, I am consistently reminded of our obligation to future generations.

I have long believed that sound financial planning requires looking beyond the horizon and preparing for future challenges before they arise. I also believe that Californians expect their government to manage public finances responsibly, prudently, and with an eye towards future generations, and ACA 20 does exactly that. This proposal will protect funding for schools and essential public services and will enable us to better weather future economic down downturns, and it will leave our children a stronger, more resilient California.

ACA 20 is an investment in California's future and a commitment to responsible stewardship for future generations. In that spirit, and in the spirit of responsible financial planning, I hope you will join me in supporting ACA, 20 and putting this important measure before the voters. Thank you.

Thank you, Chair Gabriel. Assemblymember Valencia?

Buenos días, Mister Chair and committee members, I wanna also echo the appreciation that our steadfast Assembly Budget Chair, Mister Gabriel, has shared this morning regarding the input, and the contribution to this effort. It has been a long time coming, a conversation that has taken many shapes and sizes, but so pleased to see that we are here today and in full support of this. California's future depends on the choices we make today. Good governance is not simply about managing the challenges in front of us.

It's about having the foresight, discipline, and leadership to prepare for the challenges we know will come tomorrow.

ACA 20 embodies that principle. It strengthens California's fiscal foundation by increasing the state's written day fund as it was already mentioned from 10% to 20% of the general fund and modernizing the capital gains formula so that we can capture more savings during periods of economic growth and fertility. This measure reflects responsible stewardship of taxpayer dollars, something that that I am very focused on. It ensures that while we save for the future, we also continue paying down critical state liabilities, including our unemployment insurance loan balance.

It's a balanced approach that protects both our fiscal health and long term obligations.

ACA 20 also provides greater flexibility in managing revenues to the GAM limit by allowing transfers into the reserve and surplus accounts to be excluded from the limit until those funds are actually spent. In other words, Californians should not be penalized for doing what every responsible family, business, and organization strives to do, which is safe for the future.

The measure also modernizes the budget emergencies process by allowing the Governor's May Revision to serve as a declaration of fiscal emergency when circumstances warrant providing more practical and responsive framework for addressing economic challenges. At its core, ACA 20 is rooted in a simple truth. When times are good, responsible individuals save.

We set resources aside. We understand that uncertainty is inevitable. Economic downturns, natural disasters, and unexpected crises are not a matter of if, but more so a matter of when. And we have seen that time and time again in our wonderful state. Yet, Californian's current system effectively tells us that once we reach a certain savings threshold, we must stop preparing.

That's not how families manage their finances. That's not how Californians finance their manage their finances. It should not be how the world's fourth largest economy manages its future. No family would stop saving simply because they reach an arbitrary cap on their bank account, and California shouldn't do that the same. ACA 20 gives us the opportunity to strengthen our reserves when the economy is thriving so that we can better protect Californians when economic conditions inevitably change.

This is especially important because the revenue system is among the most volatile. The LAO has repeatedly documented this dramatic swing. As an example, just as recent as a few years ago, we went from a $97.5 billion surplus to a $45 billion shortfall. And, thankfully, because previous leaders had the foresight to save to an extent, California was able to draw from those reserves to cover some of those shortfalls.

Over the past two fiscal years alone, the state has withdrawn over $12 billion from its reserves, including a withdrawal to equal about 40% of that fund's balance just in a single year.

Those reserves help protect vital programs and services from even deeper reductions. The rainy day fund did exactly what it was assigned to do, but the experience also demonstrates that our current reserve structure is not sufficient to withstand prolonged economic turbulence. The lessons in one that every Californian understands. Many families know how difficult it can be to absorb an unexpected expense without savings. While the state operates on a much larger scale, that principle remains exactly the same.

Financial stability requires preparation. Californians deserve the chance to decide this for themselves, to say how much their state should be able to set aside for the future, not only how much it should spend. ACA 20 is about leadership. It is about making responsible decisions today that will benefit Californians tomorrow. Most importantly, it's about leaving future generations a stronger California than the one we inherited.

By embracing fiscal discipline, long term planning, and part prudent stewardship, ACA 20 helps ensure that Californians remain prepared, resilient, and ready to meet whatever challenge lies ahead. That is the essence of good government, and that is exactly the promise of ACA 20. Thank you.

Thank you, Assemblymember Valencia. Chair Gabriel, do you have some witnesses you'd like to introduce?

Yes. Thank you. Thank you very much, Mister Chair. I wanted to, in call forward, we have Jason Sisney, the, the, Speaker Rivas' budget adviser, and I know we also are are fortunate to be joined by Carolyn Chu from the LAO and Lisa Murzynski from the Department of Finance.

Thank you all for being here today. Mister Sisney, did you wanna start off?

No. Just here to answer questions.

Okay.

Carolyn Chu from the Legislative Analyst's Office. Both Chair Gabriel and Mister Valencia gave a very comprehensive overview of the changes. But if the committee wishes, we could go into more technical detail about how some of the changes would work or simply answer questions.

Do you members of the committee have questions for our witnesses? We'd like to start. Senator Bennett, did you wanna start? Thank you. Excuse me. Just one thing too. And I I believe you have a handout that for members of the committee?

We do. And we can give that to the sergeants to hand out.

Would you mind passing that out now so we have folks that have it?

So the handout before you does go over the features, of ACA 20, in a in a bit more detail. But given, the overview that was already given, we're happy to just answer questions.

Sure.

First, I'd I'd like to begin by pointing out to the voters who we will be reliant upon that the state of California and Californians live in the most, erratic and challenging economic times that we face since World War two.

And in the midst of all of that, California needs to be fiscally responsible, and we're fortunate that we have leadership that has come together under the the leadership that we have both in the Assembly under speaker Rivas and budget Chair Gabriel in the Senate and and with the governor to to again propose a solution to a major challenge. And so we live in a time of great global uncertainty and erratic challenges from political leadership.

We also have one of the most difficult tax structures to modify of of any in the state. We rely on citizens to be our partners in trying to come up with the appropriate tax structure that's out there. We also have, as has been very eloquently pointed out, the most erratic budget revenue projections out there. This is a very strategic and very important modification of the tracks tax structure of California. And we need citizens to do their part now.

The leadership has done its part prepared a very responsible approach to trying to stabilize our expenditures and revenue over the long run and bring us a step closer to the fiscal responsibility that we strive to continually try to improve upon. So my compliments as we move forward with this legislation. And my challenge to the citizens out there to be informed and make sure they understand and not get distracted by inappropriate and misleading comments about this ACA 20 that is out there.

It is the responsible thing for us to do. I would like to start my questions with a focus for the benefit of of the voters on exactly why we need to go to the voters with this.

What did what is the the change? Have there been any changes since 2014 in terms of what the voters have to do to be able to approve this or what we have to do? So could you just please explain to us why does ACA 20 for the benefit of the public, why does ACA 20 need to go in front of the voters? What are the requirements that we have? And what kind of partnership do we have with the voters in terms of that fiscal responsibility?

Sure. So proposition two, which was put to the voters, actually, by the legislature originally in 2014 also, is a constitutional amendment. Constitutional amendments can only be adopted through approval of the voters. And so since ACA 20 would make some amendments specifically to, as was already referenced, how much is set aside in particularly robust revenue years, the size of the budget stabilization account, and some other facets. Those changes must be approved by the voters.

So once, the measure is placed on the ballot, by the legislature, it then will appear before the voters in November and a majority vote would adopt those amendments.

Thank you. Can you help us assure people in the education community that proposition 98 is fully protected by this ACA amendment?

The ACA amendment does not make any direct it makes no changes to the calculation of the minimum guarantee. There would be potentially some additional reserve deposits in the school reserve account from from the change to save even more during those really robust years, but the size of the reserve for schools and the rules around the the withdrawals and deposits for that account would not change.

And could you explain the improvements the the two improvements that I see that are most significant that I just want to try to emphasize here is the savings account goes from what percent to what percent?

So the the budgets were the cash. I should say, required deposits into the budget stabilization account would occur until that account reaches 20% as opposed to the current law, which is 10%.

Significant improvement from that standpoint. And then how about clarifying for everybody how we handle reserves in terms of our withdrawals and how that gives us greater flexibility to adjust to the tremendous flexibility that we have in our revenue here.

I think you're referring to the change in the treatment of the state appropriations limit. Is that what you're referring to? Okay. So under the current constitutional requirements, reserves reserve deposits count towards the state appropriations limit, which means that those deposits count against kind of the total amount of spending on certain purposes that the state can undertake. In contrast, under current law, when reserve deposits are withdrawn, they do not count against that limit.

Essentially, ACA 20 would just reverse that treatment in which the withdrawals would count at the time that they're being spent on on program and and other state services, but the deposits into the account would not count. So it, excuse me, yes, would not count.

So is it accurate to say it it ends the sort of penalty that we faced for saving money?

Maybe I would answer your question slightly differently, which is that our office did suggest that this change to the state appropriations limit would be reasonable in a few different reports over the last number of years, in order to facilitate additional savings.

So to give ourselves more flexibility in the future, we, wanted to eliminate sort of the that restriction on being able to the the restriction that was caused by the reversal of of this and that counting that against us when we saved rather than when we spent.

The yes. The state there are different ways the legislature can address the the constraints posed by the state appropriations limit, and this would be an another another way.

Great. Thank you very much.

Mister chairman, I just wanted to add to thank you for the very kind feedback and insightful questions, Assemblymember. Just to your first question about Proposition 98 and making assurances to the education community, because some of this is technical, as you know, we wanted to make sure it was crystal clear. And so we actually put into the text of ACA 20 the following. Proposition 98 was enacted by the voters in 1988 to provide a minimum funding level for schools.

Nothing in this act is intended to change the calculation or funding of the minimum guarantee under Section eight of Article 16.

So we have it there crystal clear to make clear to the education stakeholders, to make clear to members of the legislature, and to make clear to the public, that nothing in here is going to diminish the constitutional guarantee under prop 98.

I really appreciate that. And if if I could end my comments, at least at this part portion of the hearing, by pointing out that one of the things that is really satisfying to me is I believe that I am fortunate enough to be here at a time when we have the most transparent budget process that I have seen. And and I mean it when I say it's an honor to be part of a budget committee that has that kind of transparency.

And the presentation of this and what we're trying to do with this is just another example of that. Thank you very much.

Thank you, Assemblymember Bennett. Assemblymember Tangipa.

First and foremost, good morning, everyone. And I do wanna thank the author as we have spoken quite a bit about this, and I could tell you this. I have it has triggered a lot of readings on my part, readings about the history of the Gann limit, why it's in place, how this is supposed to set a standard in the state of California that government doesn't outpace our revenues.

And I've been speaking a lot with other caucus members and budgetary professionals, and I do have some clarification questions. For me, what I'd like to know is what is the current constitutional Gann limit for 2026, 2027? Have have we factored in that? And if you don't have it, it's okay.

What the actual limit is? I think it's around $200,000,000,000.

$200,000,000,000.

Something around that. Yes.

Okay. And this year, we did not do the constitutionally required deposit into the rainy day fund because there's an emergency order. Correct?

The budget is not yet adopted for '26 '27, but under the two party plan, the deposits into the BSA would be suspended in the current year, '25 '26, as well as the true ups to those deposits, but then the deposit is made in '26 '27.

So under the current proposed plan that's not adopted yet, there is a suspension in of the deposit into the BSA?

In the prior year. Yes.

Yes. Okay. And then now, assuming there is no emergency order

Yes.

So '25 '26 is suspended?

Can I pause for one minute just to clarify? Because I thought I heard you answer his question two different ways. Is it, Chair?

Correct.

Is not.

Correct.

2627? Is not. Is not? Correct.

'26 '27?

Is not?

And then he asked, was it suspended in '26 '27? And you said in the prior year, but that would be so I just wanna make sure.

Yes in '25 '26. Sorry.

Okay.

Yes. Which is the the current year. And we we will be the prior year in In a week.

The budget that we're trying to adopt, it's not projected to be suspended.

we're suspended. No.

Yeah. So in is his question of is '26 '27 the budget that we're

Right. Correct.

Okay. Thank you for letting me interrupt.

Sorry for the confusing response.

We we we've had the suspension on the deposit that goes back to 2021?

No. The suspensions, I believe, are just in effect in in 2023, no, 2024 '25, and 2025 '26.

Okay. So for the

There were there were some withdrawals in the past before that, but in terms of recent suspensions, those are the only two.

Okay. And so I would say assuming that there's no suspension, and we were to do the mandatory deposit, what would that number be?

I apologize. I don't recall that number off the top of my head, but I could get that for your office.

And it but the the number for that would be 1.5% of the general fund. Is that correct?

Yes. It would well, it's 1.5% of the general fund plus capital gains in excess of 8% of total general fund taxes. There's a figure on page three of our handout that goes through the current calculation, and I don't recall what the excess capital gains number is. And it's it's actually half of that total amount because the other half goes towards debt payments.

And and right now, we're currently under the mandatory portion for the 10% that is required right now, which is why we'd be required to deposit 1.5%.

This correct. The state has not reached the 10% threshold.

The state has not reached the 10% threshold.

Yes. What is that number?

Currently.

It would be about $25,000,000,000 roughly.

$25,000,000,000. And what do we currently have?

Under the two party plan, there would be about $15,000,000,000.

There's about $15,000,000,000. And and

Yes.

It's it's interesting that we keep calling it a two party plan. It should be called a two chamber plan as for so people aren't confused that two parties actually came together to work on this. The main reason why I I bring up those numbers in general is because as we were hearing in the presentation today that we have issues that we have not seen before, that we need to make these constitutional changes because of a struggling fiscal monetary policy.

And I just want to emphasize that we are in a record budget year, that we have record revenue. The state has never had more money in the history of the state. The state has never received more money in the history of the state. And as we opine about cuts, typically cuts materialize on the balance sheet. I think any financially responsible individual would see that and they'd be tangibly in front of us.

And and what really needs to be pointed out is as we're talking about savings and we're talking about savings and we're taking it from 10% to 20% in this, we're not even at the current 10% mark. We're not even there at that portion. And what I think really needs to be focused on as we opine about savings is the change to how the mandatory deposit to the rainy day fund is being changed as an expenditure. That is correct. Right?

It will no longer be counted as an expenditure in the budget. So therefore, we can put money into it, but it would leave a gap not approaching the GANN limit if since if we remove that 1.5%. Correct?

The appropriations limit is a little bit of an apples and oranges calculation, if I may. So it it starts with us saying, what is the total, what is the total collection of taxes that the state is gonna make this in this upcoming year? You then so so that's just on the revenue side, just on the tax revenue side specifically. From that, the state can then subtract what is called excluded spending.

So certain types of expenditures were explicitly excluded under proposition four, the state appropriations limit, including capital improvements, debt service, and some other interventions to local governments and some other categories.

And and then so you take that tax revenue total and you subtract those exclusions, and that is the amount that you compare to the state appropriations limit that was that was created by the voters.

But but we're changing how it's registered as an expenditure because that 1.5% in our budget for the mandatory deposit is considered an expense.

Yes.

Under ACA 20, the reserve deposits would be considered exclusion. So they would be a part of that amount that's subtracted from

Federal funds or all taxes.

And then that's where I think a lot of people are gonna miss in this change right now is that with that exclusion, that now opens up 1.5% of the budget for other types of spending.

And I think that's what we're avoiding because when I looked at this budget, if we really wanted to save money or prioritize the unemployment insurance or prioritize paying off our debts, I think we should do it by not paying for a $30,000,000 syphilis outbreak campaign or a $1,000,000,000 climate and innovation fund under the governor's office of climate innovation, which was just rechanged a couple years ago.

I think that's where we should be significantly more inclined to make sure that we're not spending money again on a syphilis outbreak, $8,000,000 to community based condom distribution. And but this expenditure change will open up for more of those projects to be to for us to appropriate our money because it's no longer counted towards the gain limit. And and we've got to focus on that.

And the main reason why I bring that up is because the author states that it would clarify where the money from the budget should go. And I believe that that wordage is very specific because it does not say he did not say that it codifies it. He says it clarifies. It would allow us to spend it on those types of debts. But I think if we really wanted to make this change, it would have to make it mandatory.

Mandatory that we would pay off those debts. And the main reason why I think that is because if we were gonna pay for the unemployment insurance loan, we would have done it with a $98,000,000,000 surplus in 2022 or a record budget today with record revenue. But we know that won't happen, especially when times get actually hard. And it's unfortunate that there are some in the business community that suffer from Stockholm syndrome.

And this is a ruse to change that Gann limit on that portion of expenditures to allow more spending on projects that are not the priorities of the people, they are the priorities of this legislature. And that's the unfortunate reason behind this ACA. Thank you.

If I

I would just oh, please, go ahead.

Sorry, Lisa Roskinski with the Department of Finance. First of all, let me tell you the administration fully supports the provisions that are before you. We've worked closely in this language. But as you you you mentioned that expenditures are able to spend when we when we change that to the 20% cap, and that's not true because it's still a constraint. The money goes into a BSA reserve, but it it's not it's not expended at that point.

It's a constraint similar to proposition 98. It's a formula. It's an automatic. You need to set this aside. But the state isn't available to spend that until we withdraw the funds, which would happen in the later day when we're actually expending it.

So it's it's really aligning expenditures truly with the intent of what a spending limit is when we actually spend it.

Well, I understand if if that was directed to me. I understand where that's going. But what I'm saying is because the 1.5% will no longer be considered as factored into how the Gann limit or where we will reach the gain limit because I believe it was in the 2023 2024 budget. If we would have done the mandatory deposit or 2024 2025 with the suspension of the, what, the emergency budget that we have.

By suspending the budget, adding the emergency ordinance to the budget, we did not do the deposit of the rainy day fund because that would have pushed us to and above the Gann limit, which would have triggered the rebate and would have paid the people of California back.

So we decided not to do that by no longer considering this as an expenditure and by redefining how we factor that in for our total state spending, we will now leave a gap where it will allow the state of California to, again, in a time where it's a record budget with record revenue, spend more money on passion projects like syphilis outbreak, condom distribution, a $100,000,000 to immigrant lawyer services. We should be spending it on specific areas. This will give that 1.5%, which is in the billions.

That's in the billions. That would allow the state to spend billions of more dollars on different projects. And we've avoided that portion because that is the most important thing that we need to see today.

If I may oh, sorry. I'm sorry.

Is that okay? Sorry. I I just wanna jump in if that's okay. First of all, let me just, thank you Assemblymember. I really appreciate the open heart and open mind and sense of inquiry that you brought to these conversations, and I wanna sincerely thank you for that.

And I know that you are guided by a fierce personal determination to protect taxpayers, which I appreciate. I think I would just offer a couple thoughts maybe to enrich the conversation and and just offer them from a a deep place of humility. First is that, I understand that you have many critiques of the way that money is spent in the budget and certain funding allocations.

I can assure you that, some of those conversations exist inside of the Democratic caucus, and I think my colleagues will will back me up on that. It turns out that all not all a 120 members of legislature agree on every expenditure in the budget.

But what we're trying to do here is actually say, in good years, in years when the stock market performs well, when we have big IPOs, actually to not spend all of that money on all of those programs, but take some of that money and set it aside. And that is informed by the wisdom of it's just a very common sense wisdom that we see California families do, which they say when we have a good year, we're gonna put a little money in our savings account.

So when there's a bad year and the point of that money is that in a future year, we wanna be able to pay for firefighters. We wanna be able to pay for schools. We wanna be able to support the basic functions of government.

So this is not about funding pet projects. This is about making sure that we have money tomorrow and five years from now to pay for those core essential services. And you know that we've had a lot of conversations about the need to plus up funding for wildfire prevention. It's a shared priority. This is about things like that.

I also wanna offer since you and I last spoke, I was thinking a lot about what you were saying about the Gann Limit, and actually had somebody reach out to me who's, much wiser than I am who was following this and said I saw ACA 20, and I just wanna bring to your attention that Paul Gann, who is the author of the Gann Limit, was also at the same time, he was a fierce taxpayer active advocate and and defender of taxpayers, was actually someone who supported the concept of reserves and said you should look back at the ballot in 1988 proposition 72.

I was seven years old, so I wasn't really following it closely. And there's you can see here there's a proposition, proposition 72, where Paul Gann is one of the signatories and it talks about establishing an emergency reserve fund, which may be used by the legislature for urgent and unexpected needs of our schools, public health programs, senior citizens, and others.

So I think, and I would offer, it is possible to be a fierce advocate for protection of taxpayers, a fierce advocate for responsible spending, and also somebody who can support the concept of reserves.

And I think it's that balance that we are trying to strike here. And as you and I mentioned as you and I discussed, you know, the legislature the the LAO is encouraging us to establish the cap to 50%. We have we have and we they're brilliant folks, and we respect their wisdom deeply, but I think for all of the reasons that you and I discussed, we felt that the 20% helps to preserve that balance.

So I would just offer that to you in the spirit of humility and in the spirit of enriching the conversation that we think this is really about protecting those core services, CHP, firefighters, schools, safety net programs for our most vulnerable, which I know you have spoken about very passionately, and that we can both protect taxpayers and and protect our roads and our safety net programs.

Mister Chair, I really do appreciate that fundamentally. And as you've had those conversations with me, it's where I asked the question. In a record revenue year with a record budget, wouldn't that be considered a good year? And we're not depositing into the rainy day fund. We're at the 10% right now, and we we aren't even meeting the 10% threshold.

And and that's the part where, you know, we're looking at growing it to 20%, which I'm actually extremely okay with. I think we should have money in our reserves, especially with the state of California, one of the richest economies in the entire world. We should be prioritizing making sure, especially when we've built our budget on boom or bust budgeting. We boom when the economy is doing good, and we will bust when the economy is going bad. And that's the it's very worrisome for me.

And, you know, in the but that's where, again, I I asked the question. If we're not even at the 10% deposits right now, we've suspended mandatory deposits for the last few years. That makes it more accurate.

But the rest of that let's add the rest of this. We suspended it, but this budget year, we are including deposits into the rainy day reserve. So just to get the full picture in this conversation, I think that's an important point. Sorry to interrupt you, and please continue.

The the it's just that's the part where I'm at is we're trying to I mean, again, we're trying to increase it when we're not even there. We're trying to that the the biggest change though is the way that this would be considered as no longer counted towards our spending limit. That's the biggest change that I see, where for me, I would prioritize it. That should remain and the other things would be okay.

And then, again, I also believe that we should codify, not clarify, where pulling from the reserves should specifically go.

They should specifically go to make sure that our schools are fully taken care of, that our police officers are fully taken care of, that our firefighters and emergency personnel and services are taken care of. And we are specifically paying off those debts. And that's what I asked from the business community to also ask. This would allow us to do

it, but it it poses that same question again. But the $98,000,000,000 surplus, we didn't pay off $20,000,000,000. And so that's where I really wanted to to get things to go and just that's where it's I'm looking at it from my view.

I I I really appreciate that. And I I I think I understand your perspective and your thinking here. I think what I would offer is a couple of things. One, as you know, we've had to face some really very challenging decisions over the past couple years and, you know, we're there are a lot of cuts proposed in the governor's budget that that even members of your caucus pushed back against.

I mean, we heard from Assembly member Jeff Gonzalez about how strongly he objected to some of the cuts and other solutions in the governor's budget. We've had very difficult conversations inside of the budget committee, inside of the Democratic caucus about the set of solutions that we have in front of us. And so we're working really hard to make the right choices in this moment, and certainly, I know that folks disagree with some of those choices.

What I tried to probably very inarticulately get at in the beginning of my comments is this this is not fundamentally about this year. This is about the future.

This is about our kids. This is about making sure that the next person who sits in my seat and in your seat and in the seats around this dais doesn't face those same choices, which none of us have liked the options on the table. Right? I I I think we have looked at these things and everybody has reacted very strongly to the set of choices we have. They've been politically challenging.

There's harm that's gonna be done to people in California. This budget committee has heard hours and hours and hours of public comment of people objecting to the set of choices. And so to me, what are some things that I wish we had done differently in the past so that we, as we sit in this moment, would not be facing those range of choices?

So this again, we can have a full debate, and we've had that debate about this year's budget and a series of choices, and I I I I very much appreciate and have heard your critiques and the critiques of your colleagues about the choices we made this year. But what we're trying to do is say, at the same time, we make good decisions now or make the best decision we can now, how do we see beyond the horizon?

How do we think about what's coming next? And how do we make sure that the next Assembly member from your district has a much better set of options? And more importantly than the next Assembly member for your district, how do we make sure that the people in your community know and can rely on the services that they're depending on from state government?

How do we make sure that they don't have to worry that public schools are gonna take a hit or that fire prevention is gonna take a hit or that safety net services, food banks are gonna take a hit?

Because it's fundamentally about them, and that's why we wanna give voters the options to say that in really good years, we wanna put a little more money away so that we can be certain a couple years from now, our schools aren't gonna be defunded or our food banks aren't gonna be defunded or we can count on the fire department to show up when we call.

So I would just wanna try to separate the choices we made this year from what we're trying to do here.

And I just wanna say thank you, Mister Chair, for the dialogue. This has been fun. Thank you. Thank you.

Thank you, Assemblymember. Other questions from committee members? Assemblymember Wilson.

Thank you. First of all, ACA to the authors, to the governor, to the LAO's input, both houses, I appreciate the negotiations that led to ACA 20. I think it's extremely important, given the fact that we've had record surpluses, into the 100 almost a 100,000,000,000, and not been able to put, that away. That was the question as a new legislator that I got, because I came into that.

And many of, my community members is like when we were talking about, oh, I I got this record amount of money for the district.

They were like, well, how much did we put away? Well, that's governed by the constitution. And so the only way to put away more, which is as was noted eloquently by both authors, the only way to put away more is to go to the voters and say, give us permission to put more money away. There's been a lot of conversation around, our balance sheet and all of that. So balance sheet is a a private term that talks about assets, liabilities, and equity.

A government uses primarily a statement of of net position that talks about, you know, our fund balances and, deferred liability of deferred outflows, things of that nature. When talking about revenue and record revenue, we're really looking at what our kinda income statement is, if I use a private term, that talks about our revenues and expenses. And, yes, we have record revenues. We also have record expenses, which gives us could put us in a negative position, which as in which we foresee.

And so one thing that really came up was this 1.5% in the way it's being treated differently pre ACA 20 and now post ACA 20.

So I wanna give clarity to the public on what that exactly means and the impact and why you'd want that, included versus excluded, which it currently is now. And so I don't know who's best to answer that question. But if you could talk a little bit about the difference that we're treating in one point five percent and why.

Sure. Jason Sisney, Assembly staff. So what goes into the BSA every year under the existing constitution, is a deposit first of one and a half percent of of general fund revenues. And then in addition to that, capital gains taxes above 8% of of general fund revenues. That amount of money after taking out, Prop 98's share of it, is split half and half between the rainy day fund and debt repayments.

And the payments to the rainy day fund count against the state appropriations limit in that year of deposit. In years when the state is close to the Gann limit, that means that it is harder to make those deposits, harder to make optional deposits, which is something the state can do for the the rainy day fund. And 2022, when we had that big 97 and a half billion dollar surplus, was an example of that.

And so by switching as ACA 20 proposes to do, the the the the deposits to the counting against the gain, like to making it withdrawals from the fund counting against the Gann limit, it might have made it easier to put more voluntary deposits into the BSA in a year like 2022. And those those would still count against the appropriation limit in a year they were withdrawn. So

Right. And so when in the year that they are being put away, they don't count. Correct. But it does count when you withdraw. So you can't have let's just for the sake of argument, a $100,000,000,000 surplus decide to put a $100,000,000,000 away and then in another year spend the $100,000,000,000 on top of your regular because of the Gann limit.

The Gann limit would apply in the year of the withdrawal. And Mister Gabriel mentioned proposition 72 in in 1988, which Paul Gann authored. And it proposed exactly that treatment under the Gann limit would not count when deposited, would count when it was withdrawn. So it's actually an idea that goes back about forty years in in how to help the state build reserves.

And it has been a number of years where this has been thought about and proposed that we should be doing this predating the four years that I talked about of being here. And then one of the things that came up in the in the conversation or exchange was centered around debt payments and it being I think there was a a a phrasing of it's not clear it's clarified versus mandated. Could you provide any more color to that? I think you might have used the word clarified.

But just around debt payments in general, the the what is ACA 20 doing as it relates to debt payments, if anything?

So it modifies the provisions of proposition two from 2014, which had a a an an allowance to use those funds I mentioned before for debt repayments through at least the the 2030 fiscal year. And, it had a list of of debt payments that were eligible as of that time in 2014.

I see 20 updates that list, and it applies to both current and future school debts, debts of the general fund to other state funds, pension and retiree health funds, which the state has paid down, significantly in recent years from from that pot of money and adds unemployment insurance fund loans to that list of eligible debts. That is a list of eligible debts and the state is able to choose between them.

It doesn't have to it doesn't have to make the deposits to this debt or to that debt.

But under ACA 20 through 2040, an extension of ten years, the state would have to make contributions each year that there are funds going into prop two to one or more of of those debt categories

It doesn't mandate paying down any one of them, but the legislature each year would have a choice to make which of those debts to to choose to pay down in the budget.

Would you say that, if you were concerned about debt payments, that ACA 20 then, because it allows more, options for debt payments, that that would be something that is beneficial to you and would support, with line up to where your values were if that was your concern, that this is an improvement?

Absolutely.

Okay. Which is what I thought. Okay. Thank you. And then I'm gonna make I'm gonna make a couple comments.

First of all, my colleague noted, priorities of this legislature in a form of representative government that the priorities of this legislature are the priorities of the people who spoke to that legislator and said, this is what I want you to fight for and champion for. And so I take exception with talking about this legislature as not representative of California because each in time that we have an election, the voters overwhelmingly choose who they want to send to Sacramento, and those folks make those decisions.

So I'm proud to work alongside of every single one of my colleagues, including those across the aisle. They were sent here by the people of California. I respect their opinion and thoughts.

And we built consensus, and we hope that consensus matches the people because that's who sent us here. So, so I am proud of the priorities of this legislature. But I also know and not a but to that, but just going on to my what I wanted to originally say and why I think this is good. Prior to coming to the Assembly, I had the benefit of working in finance and and proud of that career.

But one of the things that I loved every single year was bonus.

Every year, there was a bonus. It ranged. In good years, it was really good. In bad years, it was lower, sometimes nonexistent. And one of the things that my husband decided, very early on is when we got a bonus.

We would put away certain things for savings. And then the rest would be those kinda one time fun things, a nice vacation, fixing up the house, something like that. One thing that we were careful not to do with the exception of my last bonus, which was when I came here, we did allow it to go to everyday expenses just because we knew the kind of pay cut I was gonna have. But, we would prevent lifestyle creep is what I call it.

And when I would as being the finance and accounting person as a part of my job, and I would talk to my colleagues, in private industry when they got their bonuses to be aware of, you know, this thing called, lifestyle creep, where your bonuses turn into your everyday spending, you know, where you use that surplus for everyday.

Because then what happens is when that money is not there, you have a big problem. Your expenses way outweigh the money coming in. And so when I look at ACA 20, I look at us as making sure that when we get those surpluses, we're not using them on those principal expenses, that we're setting them aside. So that time when there is a need, like, for me, it was coming here. Like, okay.

All that savings. This big bonus is gonna be really helpful to make sure we can, go back to living within the new means. Right? So there's a time where that's needed. And so ACA 20 make sure of that, that we don't regularly count on these big years, to to use for our entitlement, spending.

And so I appreciate the work of our, of my colleagues, Budget, the Budget Chair, and and all the Budget Subcommittee Chairs, you all do really do God's work when it comes to the work we do here in the Assembly. How you spend your money matches really it it it's a insight into your values. And I feel like as a as a state, our values are on display. They are ones that matches the priorities of the state, and I thank and appreciate you for ACA 20.

And I look forward to encouraging all of my colleagues to support that, and thank you for all the detailed work that has gone in it from both houses to the Governor's Office to our Budget Staff and to LAO.

You know, you all do amazing phenomenal work, not only for the Legislature, but for the public to understand what is happening, with their government. And so thank you for that. Thank you, Chair.

Thank you very much, Assemblymember Wilson. And I thought your personal financial savings strategy was a great analogy for what we're talking about is it brings it home to people who are thinking about their own budget. Assemblymember Lackey and then Assemblymember Ben.

Thank you. I would just I'll--I'll be quick because I I want I don't wanna be misunderstood, but I wanna be very clear to what what seems to be reality to me. I wanna believe that this ACA is actually rooted in fiscal accountability, but I fear it's maybe based in top tier trickery. And this is why--and the complexity of this ACA will not allow most people to understand what's really happening with the funding.

It's fairly complex to understand Gann Limits and and the things associated with those kind of expenditures.

But it seems to me my, and my colleague from Fresno kinda pointed out the concerns. Expenditures won't be based on boom or bust economic pressures, but simply discretionary circumstances. And and I fear that this will not be used as as a true reserve, but as a slush fund. I have a fear for that because I have been in the Legislature for as long as they let you be in the Legislature. This would be year 12 for me.

And until 2023, we had surpluses that were crazy. There was no appetite. There was appetite to actually draw from the reserves during that those times as well. So for me to actually believe, it's really hard. It's really hard for me to believe that this is really rooted in trying to be fiscally accountable.

It seems like it creates more opportunity to spend, and I'm worried about that. And for that reason, I have difficulty with this.

Thank you, Assemblymember Lackey. Assemblymember Bennett.

Thank thank you very much. First thing I just would like to say is I respect the comments of from my colleague there. And and the reason, I think, is because I want to respond to my other colleague from across the aisle who's already left the left the room in terms of some of the comments that were made. But it's important for the public to note that, generally, political comments are rooted in the selective presentation of information.

And so the the statement was was continually made, you know, our revenues are higher than they have ever been.

But to not also add in, we have never had such historic cuts from the Federal Government as we have had now. So although we have more revenue, we have much more in terms of responsibilities to the citizens of California who are paying higher insurance cost because of these revenue cuts from the Federal Government and are facing all kinds of difficulties as a result of these cuts from the Federal Government in terms of that.

So the second thing I'd like to say in in response that I wish my colleague was here for this is that, you know, this is a really complicated issue. Like, so many issues are really complicated. And the shallowest argument you can make is name-calling, labeling.

So, unfortunately, the word was used. This is a ruse. Right? And, again, I wanna compliment my colleague, who did not engage in any of that. He gave an honest opinion about, I don't know whether you're gonna save it.

I think that's so legitimate. But name-calling is not what Californians need right now. We need people to soberly look at these issues. The because the fundamental question, if I could could summarize this, is in the face of great erratic global and national economic trends, right, should the State of California legally be allowed to save more money? That's the fundamental question.

It's really simple. You can argue about whether we should or shouldn't. Right? But that's the question that is in front of us, and I hope people won't get lost in the labeling and some of the other inappropriate things that I think are not helpful for us as we try to wrestle with many complicated issues. Thank you, Mister Chair.

Thank you, Assemblymember Bennett. And just to add to that, you know, I think you're exactly right framing this as the ability for the state to save more in good times. And then the other question, the nuanced question was, how do you categorize that savings? Do you consider that an expenditure, or do you consider that above the line? And I think if you're thinking about your personal finances, you know, the the recommendation that everybody gets is save first, then spend.

And so what we're saying now is that we should treat that savings as savings, not as an expenditure. And when you take money out of your savings account, you treat that as an expenditure. And that that is just so common sense to me that I don't see it as trickery or a ruse. I see it as just calling it like it is. We're gonna take money.

We're gonna put it in savings. When we need that money in the future for critical investments that we decide as the Legislature with the majority are important, we'll count that as as an expenditure in the Gann limit. So I I don't I don't think this is confusing. It is complex. There are--state finances are, you know, detailed, and we need experts here to help us translate that.

But the fundamental principle here is pretty clear. I think we all have experienced the challenge of having boom revenues and not being able to hold on enough of enough of them for the future, and we wanna fix that going forward. And this is a measure designed to do that. Mister Gabriel, Chair Gabriel, would you like to add anything to conclude our hearing before we have public comment?

Yeah. I just wanna, just again, express my most sincere appreciation to you, Mister Chairman for, facilitating these conversations, for helping to inform this proposal. I really I can't underscore to you enough how important the work you have done and the work of your convening folks to have these conversations has been to this. And again, also to thank my joint author for, his incredible leadership and obviously all the people at the table who have helped to have this conversation.

And also thank my colleagues for their very thoughtful comments.

I will say, Mister Lackey, I hope that we can sit and and have a moment to--to chat about this. I I can appreciate where your skepticism comes from, but I would love to, you know, at your convenience, chat a little bit more about this because I do think that really what this is is it's the Wilson family plan, which is when you get a bonus, put a little bit away for a rainy day ahead.

And I think it is it is something that is that I I see this as really just good government as as trying to see over the horizon as we talked about to think about a gift that we could leave to our kids. And and I think doing responsible financial management to make sure that there is more of a reserve there for rainy days is something is is is a gift that we can leave our kids. I I believe that very sincerely and very firmly.

And so, you know, I thought that that Assemblymember Wilson just knocked it out of the park with her analogy. That's exactly what we're trying to do here. I think it is rooted in the common sense wisdom of millions of California families who put a little bit of their paycheck away for a rainy day, and we think California government ought to ought to follow that common sense bipartisan wisdom.

And so with that, we'll look forward to the conversation on the floor, and very much hope to earn everybody's vote when it does come up on the floor. Thank you, Mister Chair.

Thank you, Chair Gabriel. Next, we'll go to public comment. Anyone like to add anything to the discussion today?

Hello, Chair and members. My name is Nuin-Tara Key. I'm chief operating officer at California Forward. California Forward is proud to support the Save for California's Future Act because it strengthens California's resilience in the face of growing uncertainty as was discussed here today. California Forward was a leading supporter of Proposition 2 because we recognized that California's long-term challenge is budget volatility.

Voters agreed that when revenues are strong, the state should save more to prepare for the future. Today, that challenge remains. California cannot afford to risk budget shocks that could cripple investments in critical programs that millions of Californias depend on. Given the increasing threats of climate-related disasters and political and economic forces beyond the state's control, now is the time to strengthen the rainy day fund to build stability and resilience.

We cannot choose when the next crisis arrives, but we can choose whether California is prepared.

Stronger reserve will help the state manage revenue volatility, protect long term investments, and avoid disruptive cuts when communities need support the most. We respectfully urge your support, and thank you.

Thank you very much.

Good morning. My name is Olivia Herrera. I'm an intern at Stone Advocacy. I'm here on behalf of Elevate California. We are in strong support of ACA 20.

We wanna thank the author and legislative leadership for this thoughtful and fiscally responsible measure. By saving more when times are good, we ensure that we are better prepared for future budget years. Thank you.

Thank you.

Mister Chair and members, Ben Golombek on behalf of the California Chamber of Commerce. While we haven't had the time to take this proposal before our board, which is required for all statewide measures, we have been longtime supporters very publicly of the policies contained in ACA 20 and encourage the proposal to keep moving forward. Wouldn't be able to take a formal position until it actually made it to the ballot.

I will say it is difficult for us to view this in a vacuum, and it's important to note, I think, the point that was made that the Legislature and Governor had many opportunities during surplus years to pay down the UI debt, which is a tax on small businesses in particular and chose not to do so.

And so we're hoping that this measure moves forward. This in future budgets will be--the money will be able to be used to help out the small business community in particular and address the UI debt, and we're very pleased to see that contained in this proposal. Thank you.

Thank you, Mister Golombek. Appreciate those comments. I just wanna thank the authors of this important measure. Your work is extraordinary and really valuable, and the witnesses for your participation to your expertise is really helpful. And, wanna thank the entire budget committee staff for all the incredible work that they have been doing and will continue to do to finish this.

And particularly, I wanna thank Christian Griffith for his passion and expertise and mentorship in this committee. We expect to see ACA 20 on the floor tomorrow, and we are adjourned. Thank you.