California’s Budget Reserves
California’s Constitution and state law govern when funds may be withdrawn from the state’s budget reserves, the amount that can be withdrawn, and how funds may be used.
- Established in the state Constitution: Budget Stabilization Account, Public School System Stabilization Account
- Established in state law: Safety Net Reserve, Special Fund for Economic Uncertainties
| Budget Stabilization Account (BSA) | Public School System Stabilization Account (PSSSA) | Safety Net Reserve | Special Fund for Economic Uncertainties (SFEU) | |
|---|---|---|---|---|
| Is the state required to make an annual deposit? | Yes | No However, a deposit is required under a restricted set of circumstances.1For example, these circumstances include requirements that deposits only occur when capital gains tax revenues exceed a specific level of total General Fund proceeds of taxes and when growth in the state’s minimum funding guarantee for K-12 schools and community colleges is relatively strong. | No | No |
| Can a required deposit be reduced or suspended — and by who? | Yes A required deposit can be reduced or suspended if the governor declares a budget emergency and the Legislature approves the reduction or suspension by a majority vote. | Yes A required deposit can be reduced or suspended if the governor declares a budget emergency and the Legislature approves the reduction or suspension by a majority vote. | Not applicable | Not applicable |
| When can funds be withdrawn? | Funds may be withdrawn if the governor declares a budget emergency and the Legislature passes a bill, by majority vote, to withdraw funds.2These withdrawal rules apply to funds that are deposited into the BSA as required by Proposition 2 of 2014. State policymakers may also deposit funds into the BSA on top of Prop. 2 requirements, creating a “discretionary” balance within the reserve. The Legislative Analyst’s Office suggests that the Legislature can withdraw a discretionary balance at any time without a declaration of a budget emergency by the governor. Separate from this issue, funds must be withdrawn from the BSA — without the need for a declaration of a budget emergency — when updated revenue estimates indicate that a prior-year deposit was greater than required. | Funds may be withdrawn if the governor declares a budget emergency and the Legislature passes a bill, by majority vote, to withdraw funds.3Funds must be withdrawn from the PSSSA — without the need for a declaration of a budget emergency — when the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level, adjusted for changes in student attendance and the cost of living, or when updated revenue estimates indicate that a prior-year deposit was greater than required. | The Legislature may withdraw the funds at any time by majority vote. | The Legislature may withdraw the funds at any time by majority vote.4Additionally, the Department of Finance may withdraw funds from the SFEU without legislative approval to cover the cost of state disaster response efforts upon an emergency proclamation by the governor. |
| Is there a limit on the amount of funds that can be withdrawn? | Yes The amount that can be withdrawn is limited to the lower of 1) the amount needed to address the budget emergency or 2) half of the funds in the BSA, unless funds had been withdrawn in the previous fiscal year, in which case all of the funds remaining in the BSA may be withdrawn. | No5However, in any year when funds must be withdrawn from the PSSSA because the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level — adjusted for changes in student attendance and the cost of living — the required withdrawal is limited to the amount of that shortfall. | No | No |
| How can the funds be used by the state? | Funds may be used for any purpose. | Funds must be used to support K-12 schools and community colleges. | Funds are intended to maintain existing CalWORKs and Medi-Cal benefits and services during an economic downturn, but may be used for any purpose if the Legislature so chooses. | Funds may be used for any purpose. |
Note: A ”budget emergency” that’s declared by the governor is defined as either: 1) the existence of ”conditions of disaster or of extreme peril to the safety of persons and property within the State, or parts thereof” as defined in Article XIII B, Section 3(c)(2) of the state Constitution; or 2) a determination by the governor that there are insufficient resources to maintain General Fund expenditures at the highest level of spending in the three most recent fiscal years, adjusted for state population growth and the change in the cost of living. Article XIII B, Section 3(c)(2), defines “conditions of disaster or of extreme peril” as being “caused by such conditions as attack or probable or imminent attack by an enemy of the United States, fire, flood, drought, storm, civil disorder, earthquake, or volcanic eruption.”
Sources: California Constitution, California Government Code, and California Welfare and Institutions Code
