LOS ANGELES — Two California initiatives on next week's ballot would be a mixed bag for the state's budgets, according to a Fitch Ratings report.
"One initiative could impact water credits positively while a second could be positive for the state, but negative for school districts," Fitch analysts said.
Proposition 2, the Rainy Day Budget Stabilization Act, could help smooth the state's volatile tax revenues, Fitch said, but at the same time could create difficulties for school districts in lean budget years.
The measure would change the state's existing requirements for the Budget Stabilization Account, a rainy day fund, by requiring the state controller to make annual deposits based on set parameters.
Fitch called Proposition 2 an important measure for the state.
The state deposited $1.6 billion into the rainy day fund in its fiscal 2015 budget for the first time since fiscal 2008.
"The enacted budget for fiscal 2015 assumes continued economic recovery and steady revenue gains while emphasizing the uncertainty inherent in California's volatile tax revenue system," Fitch said.
The gains in requiring regular deposits be made to the state's reserve fund are somewhat offset by the negative impact they could bring for school district budgets, according to Fitch.
The initiative could also restrict the ability of local school districts to save for unanticipated needs, leaving K-12 schools more vulnerable to potential funding declines.
Proposition 2 would also create a new state-level reserve for school funding, but critics of the initiative say it sets restrictive funding preconditions that could result in infrequent deposits to that reserve.
Deposits to the school reserve would trigger a statutory cap on local school reserves, potentially reducing local savings before substantial balances have accumulated at the state level.
The measure could result in local school reserves being lower than their current level.
Fitch predicted that it could result in a 6% maximum reserve, well below the current 20% average for Fitch-rated districts.
Proposition 1, the Water Quality, Supply and Infrastructure Improvement Act of 2014, would be generally positive for the state's water credits in the long run, but wouldn't address drought-related problems in the short term, Fitch said.
The $7.5 billion bond would fund state water supply infrastructure projects. Of that total, $5.7 billion would go to support water supply and water quality projects, but require localities to provide 50% in matching funds.
"It would have no positive impact on the drought or water credits in the short term and will not address the protracted debate around the controversial Bay Delta Conservation Plan," Fitch analysts said.
