SACRAMENTO, CA — Assemblymember Tim Grayson (D-Concord) and Assemblyman Tom Daly (D-Anaheim) authored a letter urging Governor Gavin Newsom to increase reserves in the proposed 2021-22 State Budget.
Sixteen members joined the authors in support: Assemblymembers Cecilia Aguiar-Curry, Marc Berman, Jim Frazier, Laura Friedman, Jesse Gabriel, Eduardo Garcia, Jacqui Irwin, Evan Low, Jose Medina, Cottie Petrie-Norris, Sharon Quirk-Silva, James Ramos, Robert Rivas, Blanca Rubio, Rudy Salas, and Carlos Villapudua.
“Better safe than sorry. Our schools, firefighters, and local state healthcare professionals are counting on us to be responsible stewards of state funds and we rely on budget reserves to avoid draconian cuts to these critical programs.” said Grayson. “We must safeguard the state from the volatility of Wall Street by saving sufficient state revenues and securing our financial position during these unpredictable times.”
“Stronger than expected state revenues, along with an infusion of federal funds, gives us a rare opportunity to truly save for a rainy day,” said Assemblymember Daly. “Nobody likes making the kinds of cuts to programs and services that we typically see during a serious economic downturn. But by increasing our reserves now, we’ll reduce the need for deep cuts the next time our economy goes south.”
The letter notes the state’s dependency on volatile revenue sources and cites the Governor’s own characterization of the Budget as “inherently unpredictable” in the May Revision. Signers of the letter emphasize the vulnerability of critical community services and note that while the 2020 budget presented by the Governor predicted a 30 percent drop in the S&P 500 by year end, the S&P 500 instead rose by 30 percent. The members conclude by stating that there is no better time than now to build a healthy reserve to protect against future downturns.
“If we have learned one thing from this last year, it is just how quickly our economic fortunes can change,” said Assemblywoman Jacqui Irwin. “It is imperative that we use this year’s extraordinary budget surplus to build a significant reserve. When the next recession comes, we will thank ourselves for the foresight.”
“Taking care of our most vulnerable communities should always be our priority,” said Assemblymember Rubio. “Setting aside money is a prudent decision that will allow us to safeguard funds for the programs that benefit constituents most.”
“Building a strong savings account while we have a budget surplus is the responsible path forward to ensure our working families are not hurt during the next recession,” said Assemblymember Salas.
A copy of the original letter:
Governor Gavin Newsom
1303 10th Street, Suite 1173
Sacramento, CA 95814
RE: Increasing Budget Reserves
Dear Governor Newsom:
The undersigned members of the Assembly are writing today to urge an increase in budget reserves.
California’s state tax revenues are highly dependent upon gains from the sales of capital assets and compensation from stock grants, restricted stock units, stock options and bonus payments that the Governor’s Budget and the May Revision rightly characterize as “inherently unpredictable.” When those sources dry up, they can do so in a big way. As the May Revision notes, “In the last recession, the S&P 500 dropped by over 50 percent; in the technology-driven recession of 2001, it dropped by about 47 percent,” and the Governor’s Budget points out that “the higher levels and valuations in the stock market and the higher levels of forecasted capital gains increase the risk of a large stock market drop.”
In the absence of sufficient reserves, the combination of volatile revenues from unpredictable sources is lethal to a budget that must provide predictable funding to public services. The Stress Test section of the Governor’s Budget reports that, “Revenue losses in this recession forecast would total over $100 billion (an average of over $30 billion per year) for three years, continue with more years of revenue declines in the range of $30 billion, and lead to a permanently lower revenue base compared to the current forecast.” Yet the May Revision proposes only $24 billion of reserves. Given revenue dependence upon unpredictable and volatile sources but program dependence upon predictable funding, we must save much more. Accordingly, we strongly encourage the accumulation of sufficient reserves to withstand the stress described by the Governor’s Budget
This time last year, the 2020 May Revision predicted the S&P 500 would drop 30 percent by yearend. Instead, the S&P 500 rose 30 percent, allowing the state to escape draconian solutions enacted in the 2020 Budget Act. One can hope for good luck to continue but in our view, better safe than sorry. With the federal government providing $25 billion of one-time funds, there has never been a better time to save state revenues. We look forward to working with you to secure the state’s financial condition for future generations at a unique moment when substantial resources are available.
Timothy S Grayson
Assemblymember, 14th District
Assemblymember, 69th District