In part two of this examination of the 14 propositions facing Californians on the November 2026 ballot (part one looked at a bond measure allegedly designed to raise funds for assisting veterans with housing), we are looking at Proposition 2, a California Constitutional amendment for which the stated goal is increasing the state’s “rainy day fund.” Before continuing, the estate of Albert Hammond would like a word.
Anyway, some background. Doubtless much to the annoyance of the California State Legislature, the state budget must be balanced every year. Given that the terms “spendthrift” and “California government” are never adjacent, this is a challenge for all parties involved as they are forced to find new and creative ways to buy votes … er, serve their valued constituents. A slight caveat to this rule is that, quoting the current voters' pamphlet:
Certain kinds of spending — like infrastructure — do not count toward the limit.
This seems to contradict the entire spending limit idea, don’t you think?
Since doubtless to his surprise Governor Gavin Newsom’s alleged good looks won’t put money in the state coffers, the only option available when more money to spend is lusted after is raising taxes. As even a Democrat can easily understand, given the fluctuations of the private-sector economy, tax revenue is not consistently sufficient to make long-term spending plans. When the hottest business in town is interstate movers for people, and the businesses they own and run, escaping the state’s insane tax burden, you have a problem.
Back in 2014, California voters authorized the creation of a “rainy day fund.” The purpose of said fund is to, during years when the taxpayer’s pockets are a bit pinched jingle-wise, cover the cost of state services provided for illegal aliens … uh, economically disadvantaged residents of unasked legal status as well as the populace at large. Such services include inadequate road maintenance, even less adequate wildfire- and mudslide-prevention measures, and Newsom’s Brylcreem stipend.
At present, the rainy day fund requires a minimum balance of 10 percent of the General Fund on which the state budget is based. Enter Proposition 2. Its core agenda is increasing the fund’s minimum balance from 10 to 20 percent.
It gets a bit wonky here, so pardon the lengthy excerpt from the voters’ guide.
Save More in the Rainy Day Fund. Proposition 2 requires the state to make deposits into the rainy day fund until it reaches 20 percent of General Fund taxes (instead of 10 percent of General Fund taxes). In addition, the state would make even larger deposits in years when revenues from taxes on investment gains are very high, like when the stock market is booming.
Extend and Expand Extra Debt Payments. Proposition 2 also requires the state to make extra debt payments through 2040 (instead of through 2030). These debt payments would be the same as the amount initially deposited into the rainy day fund each year. In addition, the amount set aside for extra debt payments could be used for an expanded set of purposes. Specifically, these payments could be used to make required payments to schools and community colleges, repay borrowing from other state funds, and repay certain loans from the federal government.
Change How Rainy Day Fund Deposits Count Toward the State Appropriations Limit. Deposits into the rainy day fund would not count toward the state appropriations limit. Instead, the money would count toward the limit when it is taken out.
Change How Other Deposits Count Toward the State Appropriations Limit. The state has an account to set aside funds when revenues are surging. By setting these funds aside, the state can avoid overspending when revenue estimates are particularly uncertain. Under Proposition 2, deposits into this account also would not count toward the state appropriations limit. Instead, the money would count toward the limit when it is taken out. This exclusion could not be larger than 10 percent of General Fund taxes in each year.
There will not be a quiz in the morning, thankfully.
It has admittedly been some time since I had my nose buried in an economics textbook. Still, if I remember correctly, when assembling a budget you consider money saved and spent not as separate entities. Instead, the two are considered as parts of the total budget, with the portion to be saved in case it is needed later and the portion to be spent right away contemplated together so one does not overrun the other. Say for example you have both a savings and a checking account at your local bank, with funds in both. Should it become necessary to tap into your reserves (i.e., savings), the money in your savings account does not magically appear when it is transferred to checking. It was always there. You don’t have more money; you have more readily available.
Proposition 2, which is supported by both Newsom and the dreadful Democrat gubernatorial candidate Xavier Becerra, reads suspiciously like a taxpayer-funded shell game. No one can argue that having reserves available in the event of an economic downturn is a bad thing. However, in California’s case, I am reminded of the possibly apocryphal letter to the editor in which the author stated he took a certain amount of offense in the statement that government spent money like a drunken sailor, for as a former drunken sailor, unlike the government he actually stopped spending money once he ran out of it. California’s Democratic “leadership” has no such inclination. Under Proposition 2’s proposed modification to existing law, money put into the rainy day fund does not count as an expenditure until it is taken from the fund. I regret to report that, for you and me, such an option is not available. It does, in fact, impact our finances when we set aside a portion of our income for savings. There is only one income, even if it comes from multiple sources. This is a lesson the California state government fails to grasp, and said failure will ultimately fall on the state’s residents as yet another reason why so many are fleeing the Golden State for greener pastures where they, not the government, are the primary beneficiaries of all earned greenbacks.
A final note. Proposition 2 would allow, but not require, California to use the rainy day fund to pay off all or part of the 20 billion-dollar loan the state took from the federal government during the pandemic. Did I mention that money in a savings account does not magically appear there and is not equally magically free to spend?