SENATE BILL REPORT

SJR 8219

BYSenators McDonald, Smitherman, Bluechel, Stratton, Craswell, Owen, Rasmussen, Hansen, Anderson, Conner, Sutherland, McMullen, Nelson and West

Amending the Constitution to create an emergency reserve fund.

Senate Committee on Ways & Means

Senate Hearing Date(s):February 16, 1989; February 23, 1989

Majority Report:     Do pass.

     Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Bailey, Bluechel, Cantu, Hayner, Johnson, Lee, Matson, Newhouse, Owen, Smith.

Minority Report:     Do not pass.

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

Senate Staff:Bill Freund (786-7715)

                March 17, 1989

AS PASSED SECOND READING

BACKGROUND:

"Emergency reserve 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 (absent tax rate or base adjustments) may even be greater than the economy.  To help stabilize state expenditures and tax rates, many states have created emergency reserve funds.  These funds are used to reduce the vulnerability of the state to economic fluctuations.

Washington State currently has a budget stabilization account.  It was created in 1981 to be implemented in the 1983-85 biennium.  Funds are to be deposited into this account by appropriation:  a) if the annual growth rate of state personal income after adjusting for inflation is in excess of 3 percent; or b) if there is an ending fund balance.  Since 1981 state personal income after adjusting for inflation has grown in excess of 3 percent only once.  However, this was 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 1983 rather than the budget stabilization account.  Consequently, the budget stabilization account has a zero balance.

SUMMARY:

After fiscal year 1993, 1.5 percent of general-fund state revenues are to be deposited into an emergency reserve fund.  In fiscal year 1992 the amount deposited is .5 percent and in fiscal year 1993 the amount is 1 percent.  The maximum amount that may be held in the emergency reserve fund during a biennium is 5 percent of that biennium's general fund-state revenues.

Withdrawals from the fund require a declaration of emergency by the Governor and approval of two-thirds of the members of each house of the Legislature.

Any balance in excess of 5 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 common school and higher education). 

Appropriation:  none

Revenue:   none

Fiscal Note:    none requested

Senate Committee - Testified:   Ruth Hertzberg, League of Women Voters; Enid Layes, AWB; Linda Matson, National Federation of Independent Business; Michelle Radovsevich, Department of Revenue; Len McComb, OFM; Karen Davis, WEA; Richard Cooley, Roundtable; Gary Smith, IBA