Senate Dems Proposal: Tap Into Rainy Day Fund

page-38-big“Senate Democrats unveiled a budget plan Tuesday that would stave off the deepest proposed cuts to California’s health, welfare and student-aid programsby dipping heavily into the rainy-day fund (RDF) that Gov. Arnold Schwarzenegger wants set aside in case the economy continues to sour,” the LAT’s Shane Goldmacher reports.

The Senate Democrats’ plan he outlined would save those programs largely by tapping into a $4.5-billion reserve included in Schwarzenegger’s budget. The Schwarzenegger administration has argued that the money should be tucked away in case the economy continues to suffer or program costs exceed those budgeted, such as for fighting wildfires. Democrats would lower the reserve to as little as $500 million.

It would appear that in exchange for dipping into the proposed RDF Senate Democrats are willing to accept $13 billion of $16 billion in cuts proposed by Gov. Arnold Schwarzenegger.

Senate President Pro Tempore Darrell Steinberg, (D-Sacramento) said they also would back $8 billion in other solutions – largely funding shifts and accelerated personal and corporate tax withholding (aka more budget gimmicks)– that the governor has proposed to close a $24.3 billion deficit.

States use rainy day funds (RDFs), or budget stabilization funds, as a cushion against financial shocks.  All states with RDFs regulate deposits into and withdrawals out of those funds. Most states build RDFs through the deposit of year-end surpluses. Withdrawal rules generally specify that funds may only be used to cover budget shortfalls or emergencies when authorized by the governor or legislature.

Schwarzenegger declared the Democrats’ approach to dealing with the state’s projected $24-billion deficit “hallucinatory.”

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