California voters to decide on Proposition 2 to expand rainy day fund | California Politics 360
California voters will decide this fall whether to approve Proposition 2, a measure that would double the cap on the state’s rainy day fund from 10% to 20% of annual tax revenue.
California’s rainy day fund, approved by voters more than two decades ago, has helped the state navigate financial challenges, including the pandemic and budget shortfalls, while protecting funding for schools, public safety, and other critical services.
“We’ve been able to stock money aside in the rainy day fund. And in years when we’ve needed it, we’ve been able to draw down from it. Part of the challenge, though, is that the rainy day fund is limited to 10% of the general fund,” said Assemblymember Jesse Gabriel, a Democrat from Encino.
Under current state law, California lawmakers and the governor are limited in how much money they can keep in the state’s main savings account. Gabriel said, “10% is just not enough, given the, the, the volatility that we’ve experienced.”
The state’s finances have experienced significant swings in recent years. According to the Department of Finance, California had an estimated $101 billion surplus in 2022-23, but just two years later, the state was facing a projected $47 billion deficit for 2024-25.
The nonpartisan Legislative Analyst’s Office has analyzed the state’s finances through thousands of scenarios over the next 50 years and predicts continued volatility, saying cuts to core services or tax increases would often be necessary.
“We don’t want to be in a position when the economy turns to have to start to think about, are we scaling back fire protection? Are we scaling back funding for education? Are we cutting funding for health care? We want to make sure that that funding for essential services is there,” Gabriel said.
Proposition 2 would double the cap on the rainy day fund to 20% of annual tax revenue. For example, if California collects $250 billion in annual taxes, the reserve account could hold up to $50 billion, compared to the current cap of $25 billion. In surplus years, state leaders would be required to save more and pay down debt before spending on new programs or services.
“And before we start spending money on new programs and services or other ideas that elected officials have, let’s keep putting money in our savings account until we get that 20% number,” Gabriel said.
Critics of Proposition 2 argue that the measure enables overspending and encourages wasteful financial practices.
“California doesn’t have a revenue problem, it has a wasteful spending problem,” said Republican State Senator Tony Strickland of Huntington Beach.
Strickland said he supports the concept of a rainy day fund but believes surplus tax revenue should be used to pay off debts, get refunded to Californians and provide tax cuts.
“I think the people should benefit from some of that surplus, are the hardworking families, and lower their burden, because right now we have an affordability crisis in California,” Strickland said.
He compared Proposition 2 to using one credit card to pay off another. “So all this does is allow the addiction to spending to continue with the legislature. And who ends up paying the bill in the long term, it ends up being those hardworking California families,” Strickland said.
The nonpartisan Legislative Analyst’s Office has recommended eventually raising the rainy day fund cap to 50%, but Proposition 2 proposes increasing it from 10% to 20%.
If approved, the measure would allow state lawmakers and the governor to use reserve funds to pay off debts, including the $20 billion loan owed to the federal government from the pandemic. However, the measure does not require them to pay off the debt.
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