The Nov. 3 measure would let the state save up to 20 percent of its general fund and keep making extra debt payments through 2040. Supporters call it basic prudence; opponents say it opens a loophole in the voter-approved spending limit.
California’s budget has swung from a surplus of roughly $100 billion to a deficit of roughly $50 billion in a few years. Proposition 2, on the Nov. 3 ballot, asks voters whether the state should be required to save more in the good years.
The measure began as Assembly Constitutional Amendment 20, the “Save for California’s Future Act,” written by Assemblymember Jesse Gabriel, an Encino Democrat who leads the Assembly Budget Committee. Because it would amend the state Constitution, it needed a two-thirds vote in each house and now needs a simple majority of voters. Assemblymember Josh Hoover of Folsom was the only Republican lawmaker to vote for it, CalMatters reported.
What the measure does
Under current law, according to the nonpartisan Legislative Analyst’s Office, the state must deposit an amount equal to 0.75 percent of general fund revenue into its main rainy-day account each year, plus a share of unusually high capital gains revenue, and spend a matching amount paying down debts. Deposits stop when the account reaches 10 percent of general fund taxes; money above that cap goes to infrastructure. The state’s general fund is about $250 billion, and its reserves available for any purpose total about $20 billion.
Proposition 2 would change four things. First, the cap would rise to 20 percent of general fund taxes, and the state would have to deposit more in years when revenue is especially strong.
Second, the extra debt payments, now limited to pensions and retiree health care and set to end in 2030, would continue through 2040 and could also be used to repay schools and community colleges, money the state has borrowed from its own special funds, and certain federal loans.
Third, money deposited in the rainy-day account would no longer count toward the state’s constitutional spending limit, known as the Gann limit, until it is withdrawn.
Fourth, deposits into a separate surplus set-aside would be treated the same way, with that exclusion capped at 10 percent of general fund taxes in any year.
The rules for taking money out would not change. The governor must declare a budget emergency, a majority of the Legislature must ratify it, and lawmakers generally may withdraw no more than half the balance in a year.
The analyst’s office summarized the fiscal effect plainly: “State budget reserves would be higher,” and the state could make more debt payments than it otherwise would.
The case for
Supporters argue that California’s revenue, which rises and falls with the stock market, is too volatile to manage without a larger cushion. In a CalMatters commentary, Mr. Gabriel and Mr. Hoover wrote that California ranks fifth among states in revenue volatility but 29th in the size of its reserves. “It doubles the size of the state’s rainy day fund and requires California to save more during strong budget years, so we’re not caught flat-footed when the next downturn hits,” they wrote.
The official ballot argument in favor is signed by Darrell Roberts of California Professional Firefighters, Mr. Gabriel and Maria S. Salinas of the Los Angeles Area Chamber of Commerce. Unions, hospital associations and chambers of commerce have endorsed it.
Asked about critics’ concerns over the withdrawal rules, Mr. Gabriel told CalMatters: “I think (the concern) is very misplaced. (Prop. 2) is recommended by the experts, because it matches the common-sense wisdom of California families.”
The case against
The opposition centers less on saving than on the spending limit. Voters adopted the Gann limit in 1979; it caps how much the state may appropriate and requires that revenue above the limit be split between schools and taxpayer rebates.
“Proposition 2 creates a loophole, allowing politicians to shift billions into reserve accounts that no longer count towards the spending limit, making your rebate far less likely,” reads the opponents’ rebuttal in the official voter guide, signed by Assemblymember David Tangipa, the Republican vice chair of the Budget Committee; Assemblymember Carl DeMaio, a San Diego Republican and chairman of Reform California; and State Senator Steven Choi, a Republican. Their argument against the measure calls the expanded reserve a “slush fund” and says that within 24 hours of placing the measure on the ballot, its backers voted to suspend more than $5 billion in required reserve deposits.
Supporters answer in their rebuttal that the rebate opponents describe “relies on a 50-year-old accounting gimmick that rewards spending instead of saving.”
“When they say we’re here for fiscal responsibility, it’s like the devil offering a Bible study. Don’t buy it,” Mr. DeMaio said at a legislative hearing, according to CalMatters.
A separate critique comes from people who favor saving but distrust the withdrawal rules. David Crane, a former economic adviser to Gov. Arnold Schwarzenegger who founded Govern for California, wrote in The San Francisco Standard that “the rainy day fund can be invaded even when it’s not raining, simply because spending isn’t as high as it was within the prior three years.” He added, “Unless the withdrawal rules change, a larger reserve just lets governors bake in spending based on optimistic forecasts, knowing they can always dip into reserves if revenue falls short.”
The history
California has built rainy-day funds before. Voters approved Proposition 58 in 2004, and lawmakers drained that account early in the Great Recession. In 2014, at Gov. Jerry Brown’s urging, nearly 70 percent of voters approved a different Proposition 2, which created today’s rules. This year’s measure builds on that framework rather than replacing it.
The campaigns for and against the measure, Govern for California and the Howard Jarvis Taxpayers Association did not respond to The Inquirer’s questions by publication time. The California Budget & Policy Center sent an automated reply saying its staff was out for the weekend.
Graham Ostrowski covers the governor, the Legislature, state agencies and the state budget for the Sacramento Report. More from Graham Ostrowski
