Here’s a riddle for you. What’s the difference between Proposition 2 on the November ballot and Bonnie and Clyde?
Bonnie and Clyde never tried to pretend they were making a deposit.
Proposition 2 makes changes to the rules and requirements for moving money into or out of the state’s Budget Stabilization Account, also known as the “Rainy Day Fund.” On the surface, it appears to be a pious attempt to save more money during the good times so it will be there during the bad times.
Look deeper and it’s a lot of optics to create the illusion of fiscal responsibility, while in reality it’s enabling more spending and making taxpayer rebates under the Gann Spending Limit even less likely than they already are.
The state’s tax revenues have been growing, but the politicians’ spending is growing even faster.
California’s state budget was $119.6 billion in 2005-06. Ten years later, in 2015-16, it was $160.2 billion. Ten years after that, in 2025-26, it was $346.9 billion. For 2026-27, it has grown to $351.7 billion.
The state budget needs more than a rainy day fund. It needs a steroid test.
For many years, California has dealt with the problem of revenue volatility. During good economic times, the state hauls in tax revenue from stock market gains and high income tax rates, even higher on the highest earners. During grim economic times, not so much.
However, the state’s spending obligations continue in good times or bad, and they typically increase in bad times as more people need assistance. The solution has been to put money in reserve accounts of one kind or another. The problem with that solution is that an account full of money in Sacramento is a lamb chop at a wolves’ convention.
In 2014, the Legislature placed a measure on the ballot, also called Proposition 2, to put tougher rules in place for the “Rainy Day Fund.” Voters loved the idea. It passed with 69% approval.
Proposition 2 (2014) required the Legislature to set aside 1.5% of General Fund revenue every year. Through 2030, half the set-aside was to be deposited into the Budget Stabilization Account (BSA) and half used to pay specified debts, especially unfunded pension and retiree benefit obligations. In good years, when revenue from capital gains taxes was above a certain level, the Legislature was required to deposit even more money in the BSA.
According to Proposition 2 (2014), when the balance in the Budget Stabilization Account reached 10% of General Fund revenues, the “set-aside” deposit would have to be spent on infrastructure instead.
But the 10% cap was never really a cap, because the Legislature could also make unlimited discretionary deposits into the BSA.
And the required deposit was not really a required deposit. All that was needed to reduce or suspend it was a declaration of “budget emergency” by the governor and a majority vote of the Legislature. “Budget emergency” was defined to include insufficient funds to maintain spending at the highest level in the previous three years, adjusted upward for population growth and inflation.
The Legislature skipped or reduced the required deposit into the BSA in fiscal years 2024-25 and 2025-26, but what was the emergency?
There was no recession. There was no pandemic. There was no tsunami. The “emergency” was an estimate that tax revenues were not growing fast enough to support government spending that was roughly double what it had been ten years earlier.
The California constitution requires a balanced budget, but the courts have held that a balanced budget is whatever the Legislature says it is. As a result, insane overspending is paid for by dropping an IOU into a future budget year.
For example, throwing fiscal caution to the winds, the Legislature and governor decided to expand full-scope Medi-Cal eligibility to every low-income undocumented immigrant in California. The cost has turned out to be about $11 billion per year, so much more than expected that the governor reluctantly closed the expansion program to new enrollments this year, imposed a premium charge, and dialed back the dental coverage.
How did the state pay for the extra Medi-Cal costs? With “budget borrowing,” the all-purpose IOU sent forward into the future, where it will be somebody else’s problem.
The new Proposition 2 on the November ballot would allow the debt repayment portion of the 1.5% set-aside to be used to repay “budget borrowing,” and instead of the debt repayment obligation expiring in 2030, it’s extended for another ten years.
This effectively relieves the state’s General Fund of these IOU payment obligations, freeing up billions of dollars of General Fund revenue for more spending.
Proposition 2 also revises the rules for calculating the Gann Spending Limit, a 1979 constitutional amendment that limits the growth of government spending, or tries to. The Gann Limit requires rebates to taxpayers if more revenue is collected than the government can legally spend.
The new rules make it even less likely that taxpayers will ever see a refund, because excess revenue can be stuffed into the Budget Stabilization Account, with the 10% cap doubled to 20% to accommodate the Gann-evading maneuver. From there it can be used to “pay debt,” in other words, to cover previous overspending.
Proposition 2 (2026) isn’t about saving money for a rainy day. It’s a new framework to allow lawmakers to more easily spend money that the state doesn’t have, what the Legislative Analyst’s Office called a “solution” to “funding shortfalls.”
Bonnie and Clyde would have called it a clean getaway.
Write Susan@SusanShelley.com and follow her on X @Susan_Shelley