Save the Rainy Day Fund

Pub date February 3, 2009
WriterTom Ammiano
SectionNews & OpinionSectionOpinion

The scope of the economic challenges facing the country is overwhelming. We all hope that the new stimulus package proposed by the Obama administration, coupled with the $700 billion bailout of the financial sector, will revive our economy. In California, the state is confronting an unprecedented $42 billion deficit; State Controller John Chiang has made clear that this could mean suspending tax refunds, welfare checks, student grants, and other payments owed to Californians unless a solution is found.
In San Francisco, with an estimated $560 million deficit for the upcoming fiscal year, the city is facing what may be the worst financial crisis in its history.

While the federal government can authorize deficit spending, essentially by printing more money, to address the crisis, the California Constitution and the San Francisco Charter both require the adoption of balanced budgets. Deficit spending is not an option to solve our local budget and economic problems.

Fortunately, in 2003, San Francisco voters adopted Proposition G establishing the Rainy Day Reserve Fund. After the lessons learned from the dot-com bust, Prop. G established an economic stabilization fund for San Francisco. The Rainy Day Fund employs a simple formula to save money for when it’s most needed: in any year when the city collects more than 5 percent more in tax revenue than it collected in the previous year, the city reserves half the extraordinary revenue growth for a "rainy day." The city can withdraw up to 50 percent of the funds from the Rainy Day Fund when an economic downturn yields less tax revenue to the city than the preceding year. The fund currently has $98 million in savings.

Last year, for example, the mayor and Board of Supervisors allocated $19 million from the Rainy Day Fund to the San Francisco Unified School District, which helped avoid 535 teacher layoffs in the face of Gov. Schwarzenegger’s education cuts. This year, it is likely that the mayor and the board will be able to withdraw some $45 million to offset the serious deficit.

These budget policies have helped preserve the city’s excellent credit rating, paving the way for low-cost debt issuance for critical projects like the rebuild of San Francisco General Hospital. However, it is important to understand that the city’s fiscal woes are a combination of cyclical and structural problems.

San Francisco’s structural imbalance between revenues collected and the cost of vital health, public safety, recreation, and social services needs to be addressed through revenue enhancements and comprehensive tax reform, not by spending the entire Rainy Day Fund as a quick fix. According to most forecasts, the recession is likely to continue through at least early next year, and San Francisco is likely to continue to experience fiscal problems.

Currently, there are discussions in City Hall about going back to the voters to revise the Rainy Day Fund to allow the fund to be fully depleted in a single year. I believe that would be a mistake. The Rainy Day Fund is an essential piece of the city’s overall financial strategy, and I strongly urge my former colleagues on the Board of Supervisors and the mayor to preserve the integrity of the fund. If used as originally intended, the fund will help maintain vital programs and help alleviate the impact of budgets cuts to our most vulnerable populations over the long-term as we work to right the ship in the face of this perfect economic storm. *

Assemblymember Tom Ammiano was a member of the San Francisco Board of Supervisors for 14 years and was the author of Proposition G, which created the city’s Rainy Day Fund.