Spending Limit Basics

As originally passed by the voters in 1993, Initiative 601 involved establishment of a spending limit based on inflation and population growth and a "rainy day" fund for excess revenues. Major changes to the expenditure limit were made by the Legislature in 2005. (link goes here to SB 6078 ). Additional changes affecting the expenditure limit were adopted in two ballot measures approved by voters in November 2007, ESSJR 8206 and Initiative 960. See Changes to...

The major elements of the expenditure limit include:

• There are annual limits on expenditures from the State General Fund plus five other "Related Accounts," including the Health Services Account, the Student Achievement Account, the Water Quality Account, the Public Safety and Education Account (including the Equal Justice subaccount), and the Violence Reduction and Drug Enforcement Account.
• Total expenditure growth from these accounts is limited by a fiscal growth factor.
• The fiscal growth factor is based on a ten-year moving average of personal income growth.
• The spending limit is adjusted when revenues or program costs are shifted from the General Fund and Related Accounts to Non-Related Accounts.
• The expenditure limit is also adjusted when revenues and program costs are together shifted from Non-Related Accounts to the General Fund or Related Accounts.
• When actual expenditures fall below the spending limit, future limits are based on the lower amount. This adjustment is called "re-basing."

Prior to passage of two ballot measures in November 2007 (ESSJR 8206 and I-960)

• Revenues collected in excess of the expenditure limit were deposited in an Emergency Reserve Fund (a "rainy day fund")
• Fee increases in excess of the fiscal growth factor required legislative approval before implementation.

With approval of the two ballot measures:

• The Emergency Reserve Fund is eliminated and its balance is transferred to a new Budget Stabilization Account (a new "rainy day fund").
• Prior legislative approval is required for all new fees and fee increases.