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Proposition 2 would let California save more money in its rainy day fund. It would double the cap on deposits into this fund, raising it from 10% to 20% of the state’s general fund tax revenue.
What’s at stake
California’s tax revenue rises and falls sharply, and it depends heavily on the stock market. A higher cap would let the state put more aside in good years to draw on during downturns.
Prop. 2 would also clear the way to allow for a more robust rainy day fund: The measure would also exclude these deposits from the Gann Limit, the voter-approved cap on how much lawmakers can spend each year, which requires excess money to be returned to taxpayers. It would also authorize using some tax revenue to pay down California’s $20 billion federal unemployment insurance debt.
Ballot language
Official title
Proposition 2: Increases State’s Rainy Day Fund
Sponsored message
Increases California's Rainy Day Fund, approved by voters in 2014, to provide funding for education, health care, public safety, and other essential services during economic downturns. Fiscal Impact: State budget reserves would be higher.
What your vote means
- A “yes” vote means: Rules for building state budget reserves and paying down extra state debts would change. As a result, state budget reserves would be higher. The state also would be required to make extra debt payments for longer.
- A “no” vote means: Rules for building state budget reserves and paying down extra state debts would not change.
Understanding Prop. 2
Here's how the Legislative Analyst's Office, the California legislative nonpartisan fiscal and policy adviser, breaks it down:
By continuing to require deposits into the rainy day fund until the balance reaches 20 percent of General Fund taxes, the state would save more over time. In addition, by depositing more money when revenues are surging, the state likely would save more in the rainy day fund in certain years. More reserves would make balancing the budget somewhat easier when revenues decline.
What supporters say
- Supporters argue that a higher ceiling would let the state save more when the economy is strong and build a bigger cushion for recessions.
- Notable endorsements: The California Democratic Party, legislative Democrats and Gov. Gavin Newsom.
- Website: YesOnProp2.com
What opponents say
- Opponents warn that politicians can use state reserves as a “slush fund.” They argue the measure would let lawmakers hold back more tax revenue without triggering the spending limit, which would avoid refunds to taxpayers.
- Notable opponents: Reform California and legislative Republicans.
Potential financial impact
Summary of Legislative Office analysis:
Sponsored message
By continuing to require deposits into the rainy day fund until the balance reaches 20% of General Fund taxes, the state would save more over time. In addition, by depositing more money when revenues are surging, the state likely would save more in the rainy day fund in certain years. More reserves would make balancing the budget somewhat easier when revenues decline.
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Further reading
- California Budget & Policy Center: Should voters approve Proposition 2? How California’s Rainy Day Fund would be updated
- CalMatters video: Explaining Prop. 2 in a minute
- LA Times: Prop. 2 Voter Guide
LAist's Rene Lynch contributed to this report.
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