Placed on the ballot by the California Legislature this summer via Assembly Constitutional Amendment 20, Proposition 2 asks voters to approve changes to the state budget process. On its face, it doesn’t seem too bad and the title given to it for the ballot is seemingly innocuous, “Increases State’s Rainy Day Fund. Legislative Constitutional Amendment.”
As the title and summary suggest, passage of Prop. 2 would double the state budget reserve cap from 10% of General Fund revenues to 20% of General Fund revenues. The General Fund is the state’s main spending account.
Supporters build off the intuition voters may have about the virtues of saving and having a bigger “rainy day fund.” As the author statement in support of ACA 20 argues, “By strengthening California’s Rainy Day Fund, we can protect funding for schools and essential public services, better weather future economic downturns, and leave our children a stronger, more resilient California.”
That argument does key in on a recurring problem facing state government financing, which is its volatility given the state’s heavy reliance on income and capital gains taxes, which are prone to boom and bust cycles. Consistently, the state has succumbed to the temptations of spending more, creating new programs, funding more boondoggles like the California High-Speed Rail project. Then, when the money runs out, the state panics, abruptly slashes some spending and plays budget shell games like borrowing from other state funds to cover General Fund spending.
That gets to the core problem with Prop. 2. The state doesn’t actually have a revenue problem. After accounting for inflation, the state budget has grown 40% since Gov. Gavin Newsom took office. There’s plenty of money coming in. The problem is how the state handles that money, which is irresponsibly.
In 2014, California voters approved another Proposition 2 which built on the state’s reserve rules and required the state to set aside 1.5% of General Fund revenue. Half had to go into the Budget Stabilization Fund, and half toward paying down debt. That latter provision is set to expire in 2030.
Enter the 2026 Prop. 2, which would enable some of the worst behavior of the Legislature, including its practice of borrowing from other state funds, by expanding the types of debts that would count as lawful uses of that money and extending that authorization through 2040.
It’s easy to miss, but the LAO summary of Prop. 2 in the official voter guide mailed out to everyone actually mentions this: “Specifically, these payments could be used to make required payments to schools and community colleges, repay borrowing from other state funds, and repay certain loans from the federal government.” As columnist and editorial board member Susan Shelley notes, “This effectively relieves the state’s General Fund of these IOU payment obligations, freeing up billions of dollars of General Fund revenue for more spending.”
Finally, as noted by Assemblymen David Tangipa and Carl DeMaio, along with Senator Steven Choi, “Prop. 2 creates loopholes and accounting gimmicks so politicians can eliminate any chance of you getting your tax rebate.” What they are referring to is the state constitutional spending cap known as the Gann Limit which, though weakened over the years, requires the state to give rebates to taxpayers under certain circumstances. Prop. 2 makes it harder to ever hit that formula-based limit.
In sum, Prop. 2 operates under the pretense that Sacramento really just wants to become more responsible. What it actually does is further bloat the accounts of the state, enables ongoing budget games and makes it harder for taxpayers to get some of their money back.
Vote no on Prop. 2 and elect more prudent state lawmakers.