Vote YES · state

2

INCREASES STATE’S RAINY DAY FUND. LEGISLATIVE CONSTITUTIONAL AMENDMENT.

What it does

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.

Why Thrive LA supports 2

Proposition 2 doubles the cap on California's rainy day fund from 10% to 20% of General Fund tax revenues, requires larger deposits during boom years when capital gains revenue is high, and extends mandatory state debt repayment through 2040. The core idea is sound. California's economy is volatile, driven by capital gains income that swings wildly with financial markets. When those revenues spike, Sacramento has a long history of spending every dollar and then scrambling to cut services or raise taxes when the next downturn arrives. A larger rainy day fund forces the Legislature to save more during good years, reducing the pressure for emergency tax hikes when revenue drops. Extended debt repayment through 2040 is also fiscally responsible: paying down obligations faster lowers interest costs and improves the state's credit standing. There is a real tradeoff here, and voters should understand it. Proposition 2 changes how rainy day fund deposits interact with the Gann Limit, the voter-approved spending cap that has protected taxpayers since 1979. Under current law, deposits into the rainy day fund count against the spending cap, meaning surplus revenue that exceeds the cap can trigger refunds to taxpayers. Under Proposition 2, deposits are excluded from the cap calculation when money goes in and instead count when it comes out. This effectively allows the Legislature to shelter revenue that might otherwise be returned to taxpayers. That is a meaningful weakening of a taxpayer protection, and we do not take it lightly. On balance, however, we support Proposition 2. The fiscal discipline of larger mandatory reserves and accelerated debt repayment outweighs the Gann Limit concern, particularly because the alternative is a Legislature that spends every surplus dollar and then demands new taxes to cover the shortfall. Saving more during booms is the single best way to prevent tax increases during busts. Proposition 2 imposes that discipline by formula, not by trusting politicians to exercise restraint on their own.

Key points

  • No New Taxes: Proposition 2 does not impose any new tax, fee, or assessment. It redirects existing revenue into savings rather than immediate spending.
  • Larger Reserve, Less Volatility: Doubling the rainy day fund cap to 20% of General Fund revenues forces the state to save more during boom years. A larger cushion means less pressure for emergency tax increases when the economy turns.
  • Mandatory Debt Repayment Extended: The measure extends required state debt repayment through 2040, including federal unemployment insurance loans and other obligations. Paying down debt faster reduces long-term interest costs and strengthens the state's fiscal position.
  • Watchpoint: Gann Limit Erosion: By excluding rainy day deposits from the spending cap calculation, the measure weakens a voter-approved taxpayer protection. The Legislature gains more discretion to avoid returning surplus revenue to taxpayers. We support the measure despite this concern, but voters should demand transparency on how sheltered funds are ultimately spent.
  • Discipline Over Discretion: Formula-driven savings requirements are more reliable than political promises. Proposition 2 locks in countercyclical budgeting by statute, reducing Sacramento's ability to spend every dollar during good times and then claim a crisis when revenues fall.

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