YES on Prop. 2 – “Increases State’s Rainy Day Fund”

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Strengthen the Rainy Day Fund – Protect Schools, Health Care, & Public Safety!

What’s the Background? California’s General Fund pays for most public services. About half of the General Fund’s annual expenditures goes to education – schools, colleges, and universities. Another third goes to health and human services including Medi-Cal. And the rest pays for prisons, courts, and other state services. The General Fund is mostly funded by income taxes which vary from one year to the next. This is because “high-wage earners” account for the largest percentage of income taxes in California, and much of their income comes from the sale of stocks – resulting in annual variability based on economic conditions

To offset the consequences of this variability and maintain essential services in economic downturns, the state has established a Budget Stabilization Account (known as the Rainy Day Fund). When the economy is strong, the state puts money into the Fund; and when the economy is struggling, the state uses the reserves in the Fund to maintain public programs without resorting to spending cuts, tax increases, or borrowing. To maintain the Fund’s solvency, the state sets aside 1.5% of General Fund tax revenues a year with half going to the Fund and the other half going to pay down debt. Once the Fund reaches 10% of General Fund taxes, the state is no longer required to make additional deposits. Instead, the state is required to use the excess funds for infrastructure investments.

The state has more than $250 billion in debts including debt for infrastructure and pension and retiree health benefits. The state also sometimes borrows money from state funds to help pay General Fund costs, and the state uses the Fund to make extra debt payments to pay down its debt for long-term pension and retiree health care debts as required by the State Constitution – saving the state money in the long run. The requirement to make extra debt payments currently ends in 2030.

What would Proposition 2 do?

Allow an increase in deposits into the Fund until it reaches 20% of General Fund taxes (vs. 10%) and make even larger deposits in years when revenues from taxes on investment gains are very high.
Extend the requirement to make extra debt payments to 2040 (vs. 2030).
Allow the amount set aside for extra debt payments to be used for other purposes, e.g., payments to schools and community colleges, repaying amounts borrowed from other state funds, and repaying loans from the federal government.
Deposits to the Fund would not count toward the state appropriations limit until the money is taken out.
Improve the state’s ability to balance the budget when there’s an economic downturn or other emergency.

Myths	Facts
“Proposition 2 does not protect education, health care, or public safety.“	These are exactly the programs paid for by the General Fund. Over half of the General Fund goes to fund education, a third to health care, and the remainder to public safety and other programs. In times of economic downturn, these are the programs that will be cut. Maintaining a strong Rainy Day Fund protects these essential programs from budget cuts in times of economic uncertainty. That’s why it’s supported by a mix of public safety, business, government leadership, and education sectors, all united in supporting the expansion of California’s Rainy Day Fund to enhance fiscal stability and protect essential services.
“The Rainy Day Fund is a Slush Fund.“	Money in the Fund is saved, not spent – it can be used only for defined purposes like downturns emergencies, and debt paydown; and it counts against the spending limit once spent. Proposition 2 does not encourage spending but rather saving for unforeseen circumstances in the future in the same way families put aside funds for a Rainy Day.