Prop 2: Increases State’s Rainy Day Fund

Summary

Proposition 2 is a constitutional amendment placed on the ballot by the Legislature. It raises the maximum size of the state's rainy day fund from 10 percent to 20 percent of General Fund tax revenues, requires the state to set aside more money in years when capital gains tax revenues are unusually high, extends required extra debt payments by 10 years to 2040, allows those payments to be used for more purposes including federal unemployment insurance loans, and stops deposits into two state reserves from counting toward the state spending limit.^S1^S2^S3^S4^S9

What a yes or no vote means

Yes means

A yes vote means the rules for building state budget reserves and paying down extra state debts would change. State budget reserves would be higher and the state would be required to make extra debt payments for longer.^S1^S2^S3^S4

No means

A no vote means the rules for building state budget reserves and paying down extra state debts would not change.^S2^S3^S4

How it works

Proposition 2 is a legislative constitutional amendment placed on the ballot by the Legislature as ACA 20 (Gabriel), Resolution Chapter 130, Statutes of 2026. The Senate voted 29 to 2 and the Assembly voted 59 to 8 to send it to the ballot.^S1^S6
The measure doubles the maximum size of the state's main rainy day fund, the Budget Stabilization Account, from 10 percent to 20 percent of estimated General Fund tax revenues. The state would keep making required deposits until the balance reaches the higher cap. Once at the cap, money that would otherwise be deposited is spent on infrastructure, the same rule that applies today at 10 percent.^S1^S2^S3^S9
Current law sets aside 1.5 percent of General Fund revenues every year, with half going to the rainy day fund and half to certain state debt payments. On top of that, the state must set aside part of the revenues from personal income taxes on capital gains when they exceed 8 percent of General Fund tax revenues. Proposition 2 splits that excess into two categories and multiplies the part above 10 percent by 1.5. For example, if capital gains revenues were $2 billion above the 10 percent threshold, the state would set aside $3 billion, which is $1 billion more than current law requires. The 1.5 percent annual set-aside is unchanged.^S9^S2
The state currently must make extra debt payments each year in an amount equal to the amount first deposited in the rainy day fund that year, and may use those payments only to prefund state retiree health benefits or reduce unfunded state pension liabilities. The requirement ends in 2030. Proposition 2 extends it through 2040 and allows the set-aside money to also pay required payments to schools and community colleges, repay borrowing from other state funds, and repay certain federal loans, including federal loans made to the Unemployment Fund.^S2^S3^S9
Proposition 2 changes how two reserves count toward the state appropriations limit, also called the Gann Limit. Deposits into the rainy day fund and into the Projected Surplus Temporary Holding Account would no longer count toward the limit, and the money would count instead when it is withdrawn. The exclusion for the holding account could not exceed 10 percent of General Fund taxes in a year.^S2^S3^S9
The measure adds a simplified path for declaring a budget emergency. The Governor's May Revision could itself serve as the proclamation of a budget emergency if the required conditions exist and the May Revision proposes reducing or suspending a required reserve deposit or withdrawing from the rainy day fund or the schools reserve.^S9
Several current rules would stay the same. The annual 1.5 percent set-aside, the ability to reduce or suspend rainy day fund deposits during a budget emergency, the limit that no more than half the fund may be withdrawn in the first year of an emergency, the ban on suspending required debt payments during an emergency, and the Proposition 98 minimum funding guarantee for TK-14 schools and community colleges would all be unchanged.^S9^S2

Fiscal impact

The Legislative Analyst's estimate of net state and local government fiscal impact is a single line: state budget reserves would be higher. The LAO explains that requiring deposits until the fund reaches 20 percent of General Fund taxes would mean the state saves more over time, and that depositing more in years when revenues surge would likely raise savings in those years.

More reserves would make balancing the budget somewhat easier when revenues decline. The LAO also says the state might make more debt payments than it would without Proposition 2, because extra payments would be required through 2040 instead of 2030. As background, the LAO reports the state currently has about $20 billion in reserves that can be used for any public program, more than $250 billion in debts, and plans to spend about $250 billion from the General Fund this year.

The California Budget & Policy Center estimates that if the new capital gains set-aside rules had applied from 2010-11 through 2023-24, the state would have set aside more revenue in 6 of those 14 years, amounting to less than 1 percent to 2 percent of total General Fund revenue in each of those years, and that a similar pattern going forward could take hundreds of millions of dollars, or more than $1 billion, off the table in some years.^S1^S2^S3^S9

Who benefits and who pays

Who benefits

State programs funded from the General Fund: the LAO says reserves help the state avoid some spending cuts, tax increases and borrowing, and that a larger reserve would make balancing the budget somewhat easier when revenues decline. About half of General Fund spending goes to schools, community colleges and public universities, and about another third goes to health and human services, mainly Medi-Cal.^S2^S3
TK-14 schools and community colleges: under the measure, set-aside revenues could be used for unfunded prior-year obligations under the Proposition 98 guarantee, including settle-up payments, and to accelerate the phase-out of a $6.2 billion debt tied to a 2023-24 budget accounting maneuver. The California Budget & Policy Center notes the measure does not create a schedule for those payments and that using set-aside funds for them could take longer than using General Fund dollars.^S9
Businesses that owe federal unemployment insurance payroll taxes: California owes the federal government roughly $20 billion borrowed to pay unemployment benefits, and businesses currently repay that principal through automatic increases in their federal payroll taxes. The measure would allow set-aside revenues to be used to repay that principal, which the California Budget & Policy Center describes as shifting a cost currently borne by businesses to the state. The choice would be up to state leaders.^S9
The state's long-term liabilities: reducing unfunded pension and state retiree health liabilities remains an allowed use of the set-aside revenues, and the LAO says making extra payments toward those debts saves the state money in the long run.^S2^S9
Supporters say the measure protects funding for schools, health care and public safety during downturns, and that it would help California absorb federal funding cuts without cutting programs. This is the supporters' claim, as printed in the voter guide.^S4^S5

Who pays

The measure creates no new tax and changes no tax rate. The money involved is General Fund revenue that would be saved or used for debt payments instead of being spent on programs in the same year.^S2^S3^S4
Revenue left on the table in strong years: the California Budget & Policy Center estimates the new capital gains set-aside would have applied in 6 of the 14 years from 2010-11 through 2023-24, at less than 1 percent to 2 percent of total General Fund revenue in each of those years, and could be hundreds of millions of dollars or more than $1 billion in some years. That is revenue not available for immediate spending needs.^S9
Debt payments off the table: the brief reports that in recent years roughly $1 billion to $2 billion in General Fund revenues each year was set aside for required debt payments and could not be used for other spending, and that this requirement cannot be reduced or suspended even in a budget emergency.^S9
Taxpayers who might otherwise receive a rebate: the state constitution requires revenue above the spending limit to be returned to taxpayers if the limit is exceeded for two consecutive years. Opponents say excluding reserve deposits from the limit makes that rebate far less likely. The California Budget & Policy Center explains that under current rules reserve deposits count toward the limit, which limits how much the state can save when revenues are growing fast, but no cited source estimates a dollar amount of any change in rebates.^S4^S5^S9
Future General Fund spending: the LAO says the state might make more debt payments than it otherwise would, and the California Budget & Policy Center notes that the newly allowed uses of set-aside money compete with prefunding retiree health benefits and reducing pension liabilities, so using more for one purpose means less for another.^S2^S9

Support and opposition

Supporters

Organizations

California Professional Firefighters
Los Angeles Area Chamber of Commerce
California Hospital Association
California Primary Care Association
California State Board of Education (president)
California Democratic Party

Key arguments

Supporters say a yes vote would protect schools, health care and public safety funding, double the state's reserve requirement from 10 to 20 percent of General Fund revenues, force politicians to bank more of a revenue windfall instead of committing it to ongoing spending, and keep education funding protected in the state constitution.^S5
Supporters say the state budget swung from a $100 billion surplus to a $50 billion deficit in a few years, and that a larger reserve would let California absorb federal cuts to health care and food assistance without slashing programs. These are the supporters' figures and characterizations, printed as their argument.^S5
Supporters say the measure is not partisan, that Republicans and Democrats in the Legislature and Governor Gavin Newsom support it, and that the Legislative Analyst's Office has recommended the state save significantly more than current rules require.^S5
The voter guide argument in favor is signed by Darrell Roberts, president of the California Professional Firefighters, Assemblymember Jesse Gabriel, chair of the Assembly Budget Committee, and Maria S. Salinas, chief executive of the Los Angeles Area Chamber of Commerce. The rebuttal to the argument against is signed by Linda Darling-Hammond, president of the California State Board of Education, Carmela Coyle, chief executive of the California Hospital Association, and Francisco J. Silva, chief executive of the California Primary Care Association.^S5
The Secretary of State's proposition summary page lists the California Professional Firefighters, the Los Angeles Chamber of Commerce, Gavin Newsom, Xavier Becerra and Assemblymember Jesse Gabriel as supporters.^S4
CalMatters lists the California Democratic Party, legislative Democrats and Governor Gavin Newsom as supporters, and lists The Sacramento Bee as a media outlet that endorsed a yes vote. CalMatters lists Reform California and legislative Republicans as opponents.^S8

Opponents

Organizations

Reform California
Transparency Foundation

Key arguments

An argument against Proposition 2 was submitted for the official voter guide and signed by Assemblymember David Tangipa, vice chair of the Assembly Budget Committee, Carl DeMaio, chairman of Reform California, and Steven Choi.^S5
Opponents say the measure creates a loophole that lets politicians shift billions of dollars into reserve accounts that no longer count toward the constitutional spending limit, making the taxpayer rebate that is owed when revenues exceed the limit far less likely.^S4^S5
Opponents say the measure guarantees more spending rather than savings, dedicates no new money to education, health care or public safety, and that within 24 hours of putting it on the ballot its supporters voted to suspend more than $5 billion in required deposits into the state's budget reserve.^S4^S5
Opponents say the measure makes the state budget more volatile and that the state should instead follow the spending rules already in place. They describe the reserve as a slush fund and say opponents of the measure are government accountability and transparency groups, naming Reform California and the Transparency Foundation.^S5
The Secretary of State's proposition summary page states that no opponents were submitted, while the voter guide does contain a signed argument against the measure. Both are reported here as printed.^S4^S5
CalMatters lists The San Diego Union-Tribune and The Orange County Register as media outlets that endorsed a no vote, and its summary of the debate says opponents argue reserves can be used by politicians as a slush fund and that the measure would let lawmakers withhold more tax revenue without triggering the spending limit so as to avoid refunds to taxpayers.^S8

How it could affect your household

Household type	Effect	Explanation	Confidence
Homeowner	Mixed	No tax rate changes and no new fee. The state would hold more revenue in reserves and make required debt payments for longer, and the cited sources do not measure what that leaves for the services a household uses. The state constitution requires that revenue above the spending limit be returned to taxpayers if the limit is exceeded for two consecutive years; opponents say the reserve change makes that rebate less likely, but no cited source estimates the amount.^S2^S4^S5^S9	Low confidence
Renter	Mixed	No direct payment and no housing program. Supporters say a larger reserve protects funding for health care, schools and public safety during downturns, and the California Budget & Policy Center says a bigger cushion helps avoid cuts to vital services, which would include programs renters rely on. Whether that happens depends on future budget decisions.^S2^S5^S9	Low confidence
W-2 earner ($100k to $250k)	Mixed	No change to income tax rates or withholding. The direct change is that more General Fund revenue would be saved or used for debt payments in some strong revenue years, which the California Budget & Policy Center sizes at under 1 percent to 2 percent of General Fund revenue in the years it modeled. Any effect on a specific household depends on later state budget and rebate decisions.^S2^S9	Low confidence
High earner (over $1M)	Neutral	The measure changes no tax rate and creates no tax, so there is no direct change in what this group pays. The LAO notes that much of the income tax is paid by high-income taxpayers whose incomes often include investment gains, and those capital gains revenues are the trigger for the larger set-asides, so the timing of state savings depends on this group's investment income. The cited sources give no estimate of an effect on a single household.^S2^S9	Low confidence
Small business owner	Mixed	No new business tax or fee. The measure would let state leaders use set-aside revenues to repay the principal on the roughly $20 billion California owes the federal government for unemployment insurance loans. The California Budget & Policy Center says businesses currently repay that principal through automatic federal payroll tax increases, so that use would shift the cost to the state, but the choice is optional and the brief says it would not fix the unemployment insurance system's financing.^S9	Low confidence
Retiree	Mixed	No tax change and no change to pension or retiree health benefit rules. Prefunding state retiree health benefits and reducing unfunded state pension liabilities stay on the list of allowed uses for the set-aside money, and the measure adds other uses that compete for the same dollars. Effects on the services a retiree uses depend on later budget decisions.^S2^S5^S9	Low confidence
Local government services user	Mixed	The measure changes state reserves, state debt payments and the state spending limit, so its direct effects are on the state budget that funds services residents use locally. The LAO says a larger reserve would make balancing the budget somewhat easier when revenues decline. The California Budget & Policy Center notes the added savings could reduce revenue available for immediate state spending in some strong revenue years and that a higher reserve cap means less spillover revenue for infrastructure over time.^S2^S3^S9	Low confidence

Tradeoffs

More saved versus less available now: the California Budget & Policy Center estimates the new capital gains rules could take hundreds of millions of dollars, or more than $1 billion, off the table in some years, reducing resources for immediate needs, while also building reserves and paying down debt faster.^S9
Infrastructure: money above the rainy day fund cap must be spent on infrastructure such as highways and housing. Because the cap would be higher, the state would reach it less often, so over time less spillover revenue would be available for infrastructure.^S2^S9
Debt payments: requiring extra payments through 2040 could mean the state pays more of its debts, which reduces long-run costs, in exchange for keeping those General Fund dollars committed for 10 more years. The added allowable uses, including unemployment insurance loans, school obligations and Medi-Cal loans, compete with prefunding retiree health benefits and reducing pension liabilities.^S2^S3^S9
Unemployment insurance debt: using set-aside funds to repay the principal on federal unemployment insurance loans would move a cost currently paid by businesses through federal payroll taxes onto the state, and the brief says it would do nothing to fix the state's unemployment insurance financing, so federal borrowing is expected to continue.^S9
The spending limit dispute: supporters say the change closes a loophole and lets the state save when it is at risk of exceeding the spending limit, while opponents say it weakens the limit voters approved and makes taxpayer rebates less likely. No cited source puts a dollar figure on any change in rebate amounts.^S4^S5^S8^S9
What the measure does not change: the 1.5 percent annual set-aside, the ability to reduce or suspend deposits during a budget emergency, the limit on withdrawals in the first year of an emergency, the ban on suspending debt payments during an emergency, and the Proposition 98 school funding guarantee all stay as they are.^S9
Where the two sides agree the measure does not decide: supporters say it protects funding for schools, health care and public safety, while opponents say it dedicates no new money to any of them and that the Legislature and Governor would keep deciding how much to spend each year. The cited sources show no new program funding in the measure.^S4^S5^S8

Sources

Proposition 2 Official Title and Summary (Official Voter Information Guide, November 3, 2026) California Secretary of State Accessed 2026-10-17
Proposition 2 Analysis by the Legislative Analyst (Official Voter Information Guide, November 3, 2026) California Secretary of State and Legislative Analyst's Office Accessed 2026-10-17
Proposition 2 [Ballot], Propositions on the November 3, 2026 Ballot Legislative Analyst's Office Accessed 2026-10-17
Proposition 2 summary page (Official Voter Information Guide, November 3, 2026) California Secretary of State Accessed 2026-10-17
Proposition 2 Arguments and Rebuttals (Official Voter Information Guide, November 3, 2026) California Secretary of State Accessed 2026-10-17
Proposition 2 – ACA 20 (Gabriel) Save for California's Future Act. (Res. Ch. 130, 2026), ballot measure contribution totals California Secretary of State (Cal-Access) Accessed 2026-10-17
Top 10 Contributors List, November 2026 General Election California Fair Political Practices Commission Accessed 2026-10-17
CalMatters California Voter Guide 2026: Proposition 2, Rainy day fund CalMatters Accessed 2026-10-17
Should Voters Approve Proposition 2? How California's Rainy Day Fund Would Be Updated (Issue Brief, August 2026) California Budget & Policy Center Accessed 2026-10-17