Lawsuit filed against budget reserve gimmick

Mar 29, 2018

With the Governor wrapping up bill signings, all that’s left before we can move past the 2018 session are the lawsuits. One such lawsuit was filed yesterday against the budget gimmick used in SB 6614 to prevent money from ever reaching the voter-approved constitutionally protected Budget Stabilization Account (BSA). According to the new lawsuit:

“Unless this dangerous precedent is challenged and overturned, future constitutionally mandated transfers into the Rainy Day Fund will be at the discretion of the Legislature. It cannot be optional for the Legislature to comply with the Constitution . . . The Legislature did exactly the opposite of what the Constitution required. SB 6614, passed with a bare majority of legislative support, violates the Constitution and must not be allowed to stand.

Plaintiff asks the court to declare the diversion of revenues in SB 6614 unconstitutional, enjoin the Defendants from spending those diverted revenues, and order the State Treasurer to fulfill his constitutional obligation to ensure the integrity of the Rainy Day Fund by ensuring the transfer of extraordinary revenue growth into the Rainy Day Fund as required by Article 7, section 12 of the Constitution. No one is above the Constitution, not even the Legislature.”

What exactly was SB 6614 trying to accomplish? The primary goal of lawmakers in adopting SB 6614 was to provide property tax relief. While a one-year property tax cut was enacted, the tax relief was facilitated by diverting money that should have gone to the constitutionally protected budget reserve account. This means that when spending these funds, lawmakers didn’t use a 3/5 vote as mandated by the state constitution. Everyone agreed there should be some type of property tax relief, but the minority Republicans objected to the precedent set by SB 6614 to keep funds from ever being deposited as required.

The State Treasurer also was concerned about the scheme implemented by SB 6614:

“As the State’s Chief Financial Officer I have a duty to speak out if we can avoid a self-inflicted wound. If the Legislature shifts its rules to avoid filling the Rainy Day Fund in the year ahead we weaken our financial position and disregard the spirit of the Constitutional Amendment passed overwhelmingly by voters who wanted to save extraordinary revenue. We also damage our well-deserved and hard-won reputation for good fiscal management with bond rating agencies and investors. Say ‘no’ to budget gimmicks. Raiding, or diverting, the Rainy Day Fund for today’s desires is the opposite of good fiscal management. Don’t do it. I urge the Legislature to not start a terrible precedent of diverting Rainy Day funding.”

It is worth noting that no public hearing was held in the Senate on this budget gimmick. The House held a short public hearing on the last day of session. The State Treasurer’s office was the only one that made it to that early morning House hearing and forcefully testified against the bill but to no avail.

In some irony, though opposed to what the legislature did, the State Treasurer is the one being sued to stop the raid of the BSA from occurring. In response to the lawsuit the Treasurer said:

“While I’m sympathetic to the goal of building the Rainy Day Fund’s balance, my office executes the laws that are passed by the Legislature. Sometimes we don’t necessarily agree with the policies passed by the Legislature but the law is the law and we closely follow advice from our legal counsel in staying within the law. We hope that this legal action moves forward swiftly as it could have a substantial effect on the state budget and will set a precedent for future policy. Time is of the essence.”

Aside from honoring the intent of the voters who adopted the BSA in 2011, why does a strong protected reserve account matter? Consider this warning from the state’s February revenue forecast:

"Risks to the baseline include stock market volatility and concerns about international trade and fiscal policy.”

This is precisely what the State Treasurer was concerned about. He told lawmakers before they adopted SB 6614:

“We’ve had 10 recessions since World War II.  Another will come – perhaps sooner than we anticipate.  With the growing concerns of trade wars and market volatility, now is the time to build Rainy Day balances even higher. The historic boom we are in will not last and when the recession comes all will be grateful if the Legislature is far-sighted today and allows this continued growth.”

There will be major consequences for the state no matter the outcome of this budget gimmick lawsuit. Should it succeed, the Legislature will be forced to re-balance the large budget increase it just adopted. If it fails, the blueprint will be set for future lawmakers to raid the protected status of the BSA without a supermajority vote.

Additional Information
Property tax cut coming but oh what a budget gimmick!
Citizens’ Guide to Senate Joint Resolution 8206 To Enhance the State’s Constitutional Savings Account

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