Brief Description: Creating a rainy day reserve fund.

Sponsors: Senators Zarelli, Benton, Parlette, Holmquist, Stevens, Swecker, Pflug, Delvin, McCaslin, Brandland, Schoesler, Roach, Hewitt, Honeyford and Carrell.

Brief History:

Committee Activity: Ways & Means: 1/30/07.

SENATE COMMITTEE ON WAYS & MEANS

Staff: Steve Jones (786-7440)

Background: Initiative 601, adopted by the voters in 1993, established by statute a State General Fund expenditure limit and created the Emergency Reserve Fund. The Emergency Reserve Fund receives all State General Fund revenues in excess of the state expenditure limit. Appropriations may be made from the Emergency Reserve Fund only by a two-thirds vote of the Legislature.

"General state revenues" is defined in the State Constitution as being all state revenues that are not dedicated to a particular purpose. Thus, general state revenues consist of all revenues to the State General Fund, with the exception of property tax revenues, which are dedicated to the common school system.

Summary of Bill: The State Constitution is amended to establish a Rainy Day Reserve Fund. Each fiscal year, one percent of general state revenues are deposited to the Rainy Day Reserve Fund. If forecasted state employment growth for any fiscal year is less than one percent, then monies for that fiscal year may be appropriated by a majority vote of each house of the Legislature. Other withdrawals from the Rainy Day Reserve Fund may be made only by a three-fifths vote of the Legislature.

Investment earnings are retained by the fund, unless otherwise provided by statute. To the extent that the balance of the Rainy Day Reserve Fund exceeds ten percent of general state revenues, withdrawals may be made with a simple majority vote of the Legislature, subject to such restrictions as may be made by statute.

Appropriation: None.

Fiscal Note: Not requested.

Committee/Commission/Task Force Created: No.

Effective Date: The bill takes effect on June 1, 2008.

Staff Summary of Public Testimony: PRO: A rainy day reserve fund will provide for the structural sustainability of state budgets over time. The current economic conditions provide a strategic opportunity for the creation of a budget reserve, which will improve the state's bond rating and save state debt service costs by lowering the interest rate paid on state bonds. Just as a family saves a portion of its income for a rainy day, the state should not spend all of its income during periods of economic growth. A downturn in the economic cycle is inevitable. Establishing the reserve fund in the State Constitution on a bipartisan basis will enforce good budgeting discipline by restricting access to the monies held in reserve. Small businesses are excited about this proposal because it will help avoid tax increases during economic downturns, when businesses are vulnerable. The criteria for legislative withdrawals from the fund should be very strict.

Persons Testifying: PRO: Senator Joseph Zarelli, prime sponsor; Senator Lisa Brown; Senator Rosa Franklin; Victor Moore, Office of Financial Management; Jason Mercier, Evergreen Freedom Foundation; Carolyn Logue, National Federation of Independent Businesses.