Prop. 2 would let California double the cap on its rainy day fund; Republican critics say refund the money instead

California voters will decide Nov. 3 whether the state can set aside much more of its tax money when times are good.

Proposition 2, which its backers call the Save for California's Future Act, would raise the cap on the state's rainy day fund to 20% of general fund tax revenue, twice today's 10% ceiling, CalMatters reported Friday. The measure also requires the state to bank a larger share of revenue gains in years when collections grow quickly.

The case for it

Democratic legislators and Gov. Gavin Newsom support the measure, as does a bipartisan coalition of unions, business chambers and hospital groups. They argue the budget is too tied to the stock gains of wealthy taxpayers, which produces sharp swings.

Recent revenue fueled by the AI-driven economy has helped the state avoid or put off cuts, CalMatters reported, though economists have warned the run may not continue.

Encino Democrat Jesse Gabriel, who chairs the Assembly Budget Committee, and Folsom Republican Josh Hoover, vice chair of Assembly Appropriations and the lone Republican legislator to support it, wrote that it would keep California from being "caught flat-footed when the next downturn hits." The nonpartisan Legislative Analyst's Office has long recommended that the state save for downturns.

The case against it

Most Republican legislators opposed the measure, saying surplus revenue should go back to taxpayers as refunds and that a larger reserve would only give officials more to spend. San Diego Republican Assemblymember Carl DeMaio said that hearing fiscal responsibility from its supporters is "like the devil offering a Bible study."

Critics also point to the rules for tapping the fund, which the measure leaves alone. Under the 2014 reserve law, lawmakers can draw on the fund after a governor declares a budget emergency because expected revenue will not cover spending at the level of the prior three budgets, and a legislative majority agrees.

David Crane, who advised Gov. Arnold Schwarzenegger on the economy and later founded the group Govern for California, wrote that those rules let governors dip into the reserve "even when it's not raining."

Gabriel told CalMatters the criticism is misplaced, noting that voters approved the withdrawal rules in 2014.

How the fund works now

The current system dates to an earlier Proposition 2 that nearly 70% of voters passed in 2014 under Gov. Jerry Brown. It directs the state to put away 1.5% of general fund revenue each year plus spikes in capital gains revenue, with half going into reserves and half toward paying down debt.

That followed a 2004 reserve that lawmakers drained early in the Great Recession, which led to deep cuts, worker furloughs and postponed payments owed to schools and local governments.

Sources

pleasantonweekly.com