SENATE BILL REPORT

SJR 8229

BYSenators McDonald, Niemi, McCaslin, Owen, Craswell, Smitherman, Moore, Bailey, Stratton, Johnson, Rasmussen, Conner, Smith, Hansen, Kiskaddon, Anderson, West, von Reichbauer, Hayner, Zimmerman and Barr

Establishing an emergency reserve fund.

Senate Committee on Ways & Means

Senate Hearing Date(s):January 13, 1988; January 28, 1988

Majority Report:  That Substitute Senate Joint Resolution No. 8229 be substituted therefor, and the substitute resolution do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Bluechel, Cantu, Deccio, Hayner, Johnson, Lee, Newhouse, Saling, Smith, Zimmerman.

Minority Report:  Do not pass.

      Signed by Senators Bauer, Fleming, Gaspard, Moore, Talmadge, Vognild, Williams, Wojahn.

Senate Staff:Gary Benson (786-7715)

                  February 1, 1988

AS REPORTED BY COMMITTEE ON WAYS & MEANS, JANUARY 28, 1988

BACKGROUND:

"Rainy day funds" are contingency funds set aside during times of strong economic growth to be spent during periods of weak economic growth.  Tax revenues, like the economy, do not grow at a constant rate but are subject to cycles.  In fact, the cyclical nature of tax collections (without modifying the tax rate or base) may even be greater than the economy.  In order to help stabilize state expenditures and tax rates, many states have created "rainy day funds".  These funds are used to reduce the state's vulnerability to economic fluctuations.

The Washington State government essentially self-insures for losses, including casualty losses.  However, the state does not set aside any reserves in anticipation of a casualty loss.  Current operating revenues or bond sales need to be used to cover the loss.  Casualty losses refer to losses resulting from sudden, unexpected or unusual causes such as fires, shipwrecks, lightning, etc.

Washington State has a "budget stabilization account" created in 1981 which currently does not have any money in it.  Means by which funds are to get into this account are:  a) if the annual growth rate of state personal income after adjusting for inflation is in excess of 3 percent; and b) ending fund balances.  Since 1981 state personal income after adjusting for inflation has in some years grown in excess of 3 percent.  However, this has been discovered several years after the fact and the statutory language on how money is to get into the account is not clear.  In 1983 the Legislature created the "revenue accrual account" into which are transferred ending fund balances.  This account has received the ending fund balances since then rather than the budget stabilization account.

SUMMARY:

After fiscal 1991 2 percent of general fund-state revenues are to be deposited into an "emergency reserve fund."  In fiscal year 1990 the amount deposited is 1 percent of GF-S revenue and in FY 1991 the amount is 1.5 percent of GF-S revenues.  The maximum amount that may be held in the emergency reserve fund is 8 percent of the current biennium's total general fund-state revenues.

Appropriations from the emergency reserve fund need to be approved by two-thirds of the members of the Legislature after a declaration of an emergency.

Any balances in excess of 8 percent of the current biennium's general fund-state revenues and all interest earnings from the emergency reserve fund are to be used for school construction (both K-12 and higher education).

EFFECT OF PROPOSED SUBSTITUTE:

In addition to the above, casualty losses are added as an approved use of emergency reserve funds.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: Charlie Hodde, citizen