Proposition 2, if passed, would allow the state to deposit up to 20% of general fund tax revenue into a rainy day fund. The increase could provide funding for education, health care, public safety and other essential services during economic downturns, according to the secretary of state’s ballot guide.
California’s Rainy Day Fund, otherwise known as the Budget Stabilization Account, is used to maintain essential public services such as education, health care and child care. The fund is used in instances where outside funding fails, according to The California Budget and Policy Center.
Matthew Cole, an economics professor, said Proposition 2 comes with various tradeoffs.
“If we’re putting money in the rainy day fund, that means we’re not putting that money in other things, like education or building roads and infrastructure and other sorts of things,” Cole said. “It doesn’t mean that it’s a bad choice. It’s just those are the tradeoffs.”
The original legislation passed in November 2014 and established the budget cap of 10%. Proposition 2 would effectively increase the budget cap to 20%, requiring the state to save more over time and increasing budget reserves, according to the Legislative Analyst’s Office.
Cole said the rainy day fund would be beneficial in the case of low tax revenues, high unemployment or recession, and the fund would help those disproportionately affected by these events.
“You can help these people in those downtimes anyway. But in order to do so, you have to take on debt, which you have to pay for, with an interest rate,” Cole said.
Proposition 2 also authorizes spending tax revenue to pay part of California’s $20 billion federal unemployment insurance debt, according to the secretary of state’s ballot guide.
Proponents of Proposition 2 include the California Democratic Party, Gov. Gavin Newsom and Democratic legislators, according to the secretary of state’s ballot guide.
The proposition would raise the ceiling for the percentage of revenue the state can put in the rainy day fund, but the state is not currently reaching the ceiling anyway, according to Cole.
“It’s a proposition that has no real effect,” Cole said. “If I say the minimum wage is $10, but you’re already making $15, well, the minimum wage didn’t do anything to you. It’s sort of an irrelevant policy.”