The RCJ votes Yes. When has it not been a good idea to put money away for a rainy day. They always come.
Proposition 2 would change California’s constitutional rules governing the state’s Rainy Day Fund, formally called the Budget Stabilization Account. The measure would raise the maximum reserve from 10 percent to 20 percent of General Fund tax revenues and require the state to continue making deposits until the higher threshold is reached. It would also require additional savings in years when revenues from capital gains and other investment-related taxes are unusually high.
The measure would extend certain extra state debt payments through 2040, while allowing some of those payments to be used for additional purposes, including obligations to schools and community colleges. The Legislative Analyst’s Office estimates that the principal fiscal effect would be higher state reserves.
The Pro Argument
Supporters argue that California’s revenue can swing dramatically with the economy and stock market. A larger reserve would give the state a greater cushion during recessions, potentially reducing the need for abrupt cuts to schools, health care, public safety and other services.
Supporters also say the measure would encourage Sacramento to save more during unusually strong revenue years rather than building ongoing spending commitments around temporary surpluses. The nonpartisan Legislative Analyst’s Office has previously concluded that increasing California’s reserve capacity would improve the state’s ability to manage budget shortfalls.
The Con Argument
Opponents argue that Proposition 2 could make taxpayer rebates less likely because it changes how deposits into reserves are counted under California’s constitutional spending limit. They contend that money moved into reserves would effectively be shielded from the limit until it is withdrawn.
Critics also point out that Proposition 2 does not itself provide additional funding for schools, health care or public safety. Rather, it changes how much money the state must save and how certain expenditures and debt payments are treated. Opponents argue that California should maintain stronger spending controls instead of creating additional flexibility for the Legislature.
In Brief
The debate over Proposition 2 is essentially about how much California should save during good economic years. Supporters see a larger Rainy Day Fund as protection against the state’s recurring boom-and-bust budget cycles. Opponents worry that the measure could reduce taxpayer rebates and loosen an existing constitutional spending constraint. The Legislative Analyst’s Office says the measure would result in higher reserves and potentially more debt payments.
Proposition 2 has substantial support from state political and institutional leaders, while the formal opposition is much smaller.
Who supports Proposition 2?
The official California voter guide lists these prominent supporters:
- Gov. Gavin Newsom
- Xavier Becerra, former California attorney general and health secretary
- Jesse Gabriel, chair of the Assembly Budget Committee
- California Professional Firefighters
- Los Angeles Area Chamber of Commerce
- California Hospital Association
- California Primary Care Association
- Education and health-care advocates, including State Board of Education President Linda Darling-Hammond. (California Voter Guide)
The measure also passed the Legislature with substantial bipartisan support: 29–2 in the Senate and 59–8 in the Assembly. (California Voter Guide)
Supporters’ basic argument is that California’s revenues are unusually volatile, so the state should save more during strong economic years. Proposition 2 would double the Rainy Day Fund’s maximum from 10% to 20% of General Fund revenues, providing a larger cushion during recessions. (Legislative Analyst’s Office)
Who opposes Proposition 2?
The principal named opponents are:
- Assemblymember David Tangipa, a Republican and vice chair of the Assembly Budget Committee
- Assemblymember Steven Choi, vice chair of the Senate Elections and Constitutional Amendments Committee
- Carl DeMaio, chairman of Reform California. (California Voter Guide)
Their argument is that California’s problem is not insufficient reserves but excessive government spending. They contend that Proposition 2 could make taxpayer rebates less likely because deposits into the Rainy Day Fund would no longer count toward the state’s constitutional spending limit. They also argue that the measure does not itself provide additional funding for schools, health care, or public safety. (California Voter Guide)
The political divide
The interesting feature of Proposition 2 is that it has much broader institutional support than opposition. The official voter guide actually lists “Opponents: None submitted,” even though individual legislators and taxpayer advocates have publicly argued against it. (California Voter Guide)
In simplified terms, the divide is:
Supporters: save more now so California can protect essential services during the next downturn.
Opponents: impose greater spending discipline rather than allowing Sacramento to accumulate and potentially spend larger reserves.
The measure therefore isn’t primarily a debate over whether California should have a Rainy Day Fund; it is a debate over how large that reserve should be and how the state’s constitutional spending limit should treat money placed into it. (Legislative Analyst’s Office)