5 Things to Know about the Rainy Day Fund

SACRAMENTO, Calif. (AP) - Key points to help you understand the rainy day fund measure passed Thursday.

1. DOESN’T CALIFORNIA ALREADY HAVE A RAINY DAY RESERVE?

Yes. Voters established a rainy day fund in 2004, which is supposed to be filled annually with 3 percent of general fund revenue. But it has been criticized for having loose rules governing when lawmakers can tap it and when they must replenish it. It has not received a contribution since 2007.

2. WHAT DOES THE MEASURE PASSED THURSDAY DO?

The bipartisan measure overwhelmingly approved Thursday by the Legislature replaces a rainy day fund measure that already was on the November ballot. It will be known as Assembly Constitutional Amendment 1.

During a budget crisis in 2010, under then-Gov. Arnold Schwarzenegger, lawmakers negotiated a fix to the existing rainy day fund and placed it on the 2012 ballot. It was then delayed until this November. Last month, Gov. Jerry Brown called on lawmakers to change that version, saying it was too rigid and made the fund difficult to tap in times of natural disasters, emergencies and recessions.

3. HOW WILL THE NEW VERSION WORK?

Instead of requiring an annual contribution equal to 3 percent of state general fund revenue, the new version will require an annual contribution equal to just 1.5 percent. But additional money would flow in from increases in capital gains tax revenue during boom years, until the fund reached a level equal to 10 percent of the general fund. The existing voter-approved rainy day fund sets the maximum at 5 percent of general fund revenue.

4. HOW WILL THE RAINY DAY FUND BE SPENT?

The deal requires the state to use half the money to pay down debts and liabilities for 15 years, with the other half available for disasters and budget crises. California’s total debts and liabilities have been pegged at $340 billion, most of which are for unfunded public employee pensions and retiree health care.

5. WHY DID DEMOCRATS AND REPUBLICANS AGREE?

Republicans got to keep a minimum annual contribution to the fund and tightened the definition of debt to exclude voter-approved bonds such as those dedicated to the high-speed rail project. Democrats won greater flexibility to use the rainy day fund as a way to reduce the severity of budget cuts during economic downturns.