Proposition 2: California Budget Stabilization Account Cap Increase and Gann Limit Changes Amendment

California has a poorly designed tax system. We cap property taxes, starving the state of education funding, so we make up for it with high income and capital gains taxes. But capital gains are unpredictable (https://calmatters.org/explainers/california-budget-whiplash/), so in boom years we might have a $100B surplus and in bust years we might run an $80B deficit. This means a rainy day fund is required to capture the surplus when we're flush so we don't have to cut services or raise taxes when we're not.

Reasonable people can disagree about the right amount to save, and whether the government should be forced to do so, so consider this endorsement a weak yes.

Two things voters may want to consider when deciding how to vote:

1. Both OpenAI and Anthropic are poised to launch record-shattering IPOs in the coming year. If voters enact Prop 2, then the state will save more of that money than it otherwise would, without raising taxes.
2. The flipside is that Prop 2 would make boom-year taxpayer refunds less likely. Rebates like the 2022 stimulus checks happen only when revenue exceeds the state's constitutional spending limit two years running, and Prop 2 counts rainy day deposits against that limit only once the money is spent (see the Gann limit (#prop-2-gann) above).

Overall, we think building up the rainy day fund is the right choice.

Source (https://growsf.org/voter-guide/san-francisco-voter-guide-november-2026-election#prop-2)

To reduce housing costs, we need to reduce local fees. That requires state revenue reform. California YIMBY has found substantial success reforming many of the barriers to housing growth in our state. From zoning reforms, to ADUs, to parking reforms, our land use agenda is making progress in Sacramento, and across California. But land use reform is just one leg of the housing abundance stool. We also need to bring down costs, where we can – and one of the remaining barriers are exorbitant fees that local governments charge to builders of new homes. That’s why we’ve turned our attention toward addressing the cost issue. Local “impact fees” for new housing are a significant cost driver in many jurisdictions, with parks fees alone sometimes adding tens of thousands of dollars to the cost of building a new home.

SPUR's Recommendation

Given the volatile nature of California’s tax revenue structure, adequate reserve requirements are necessary to avoid severe service reductions during economic downturns. The proposed measure would better manage this boom-and-bust cycle by requiring greater savings during good times to avoid deeper reductions during bad ones — when public safety-net services are most needed.

What Prop. 2 Would Do

Proposition 2 would modify California’s Budget Stabilization Account (the state’s rainy day fund) to

• Increase the maximum reserve balance from 10% to 20% of the state’s annual general fund revenues.
• Require additional revenue deposits to increase the reserve and repay certain state long-term debts during periods of extraordinary revenue growth.
• Expand the definition of long-term debts eligible for repayment from the reserve and extend these requirements from 2030 to 2040.
• Clarify the account’s interaction with state constitutional limits on appropriations (setting funds aside for a specific purpose).

The Backstory

California’s tax system produces volatile revenues because it relies heavily on personal income taxes, particularly capital gains. Consequently, revenues rise when the economy and stock market are strong and can fall by billions during downturns, creating boom-and-bust budget cycles. The Legislative Analyst’s Office (LAO) notes that these swings are an inherent feature of California’s revenue structure and are likely to continue, making a strong reserve policy an important tool for maintaining stable public services over time.

In response, California voters approved Proposition 2 in 2014, establishing a constitutional rainy day reserve known as the Budget Stabilization Account. During strong revenue years, the state must put half of excess revenues into the reserve until the reserve totals 10% of annual General Fund revenues. The other half must be used to pay down specific long-term debts and liabilities through 2030. According to the LAO, Proposition 2 has substantially improved California’s fiscal resilience, allowing the state to build larger reserves that have helped cushion recent budget deficits. Nevertheless, the LAO concludes that the current reserve structure remains insufficient to offset the magnitude of California’s long-term revenue volatility, leaving the state vulnerable to significant budget reductions during prolonged downturns. While California’s reserves have grown, they remain relatively low: the state ranks fifth in the nation for revenue volatility but only twenty-eighth for reserve levels.

This election’s Prop. 2 seeks to strengthen California’s reserve framework by increasing both the size of required reserve deposits and the maximum amount the state may accumulate in the reserve. The measure would double the constitutional cap on the reserve from 10% to 20%, require larger deposits to the reserve during years of exceptionally strong capital gains tax revenue growth, broaden the defined debts that may be paid down with other required deposits, and extend these debt payment obligations from 2030 to 2040.

The LAO concludes that these changes would allow California to save substantially more during boom years and better prepare for future recessions, although it also notes that even larger reserves would ultimately provide greater long-term protection against the state’s unusually volatile revenue base. The LAO estimates that the current reserve equal to 10% of revenues would cover about 30% of future budget gaps, while the proposed 20% reserve would cover about half of future gaps.

Finally, Prop. 2 would make several constitutional and procedural changes related to the state appropriations limit established by the Gann Limit, which imposes requirements on how the state can spend General Fund revenues. Under current law, reserve deposits count toward the appropriations limit when made, even though the funds are merely set aside rather than spent. The measure would instead count withdrawals from these accounts (spending), rather than deposits (setting funds aside). This approach better aligns the appropriations limit with the state’s reserve policy by allowing the state to save excess revenues without triggering the spending limit, while ensuring those funds count against the limit when ultimately spent.

The California Legislature placed the measure on the ballot, and it requires a simple majority (50% plus one vote) for approval.

Equity Impacts

Over time, the measure would improve services for vulnerable communities that disproportionately rely on state-administered and state-funded programs. By building reserves during better economic times to minimize state budget reductions during recessions and economic downturns, the state would be better able to meet demand for public safety-net services, which often increases during those periods.

Pros

• Prop. 2 would improve the state’s rainy day account requirements to better manage the boom-and-bust nature of the state’s volatile revenue structure, better matching spending and revenues over time.
• By improving the stability of the state’s fiscal management, the measure would benefit California city and county governments that often face state budget reductions during economic downturns.
• By extending mandatory requirements to pay down debts and long-term liabilities, the measure would reduce the state’s long-term costs.
• The measure would rationalize the reserve’s interaction with state constitutional appropriation limit requirements.

Con

• The maximum required balance for the Budget Stabilization Account would cover only about 50% of revenue losses during a typical economic downturn.

Source (https://www.spur.org/voter-guide/2026-11/ca-prop-2-rainy-day-fund)

No on Prop 2: Guts State Budget Spending Limit and Cancels Tax Rebates

DECEPTION ALERT: Appears on your ballot with the politicians’ FALSE ballot title of “Increases State’s Rainy Day Fund.”

Prop 2 claims to create a bigger rainy day fund in the state budget, but in reality it creates a new slush fund for politicians to engage in more wasteful spending. Prop 2 eviscerates the current voter-imposed spending limit on state politicians. Worse, it virtually eliminates the requirement that taxpayers receive tax rebates if revenues exceed the spending limit. With Prop 2, politicians get to keep more of your money so they can waste more of your money.

Source (https://www.reformcalifornia.org/voter-guides/san-diego)

NO on Prop. 2

This measure makes changes to the Gann Limit, passed by voters in 1979, and to the rules for the Budget Stabilization Account (“Rainy Day Fund”) that were approved by voters in 2014. Tax revenue goes up and down in California with the stock market, because of the state’s dependence on taxes from high earners and capital gains. Proposition 2 attempts to address this revenue volatility challenge with new rules for the Budget Stabilization Account. However, while Prop. 2 addresses the treatment of appropriations into and out of reserve funds in a way that makes sense from the perspective of addressing revenue volatility, it doesn’t address the weakening of the Gann Limit by Propositions 98 (1988) and 111 (1990), enabling reckless overspending that has led to structural deficits and self-inflicted budget “emergencies.” California is in desperate need of fiscal discipline. The changes in the state constitution that permit unlimited spending should be reversed. Prop. 2 falls far short of real spending reform and, unfortunately, amounts to little more than a Band-Aid on a severed limb.

Vote NO on 2.

Source (https://www.hjta.org/2026votingguide#Ballot-Measure-Recommendations)

Prop 2 - Increases State’s Rainy Day Fund

Endorsement: NO on Proposition 2

Sacramento must prove to taxpayers they’re producing results for California before asking for any increases in funding. Proponents claim that Proposition 2 would stop politicians from overspending. Ironic, given that Sacramento’s budget is confirmed at $352 billion in FY 2026/27 and they’re asking for more handouts.

Yet another attempt to increase the insider slush fund.

Vote NO on Proposition 2

Source (https://www.connectedsf.com/2026-voter-guide#prop-2)

**DECEPTION ALERT: Appears on your ballot with the politicians’ FALSE ballot title of “Increases State’s Rainy Day Fund.” Prop 2 claims to create a bigger rainy day fund in the state budget, but in reality it creates a new slush fund for politicians to engage in more wasteful spending. Prop 2 eviscerates the current voter-imposed spending limit on state politicians. Worse, it virtually eliminates the requirement that taxpayers receive tax rebates if revenues exceed the spending limit. With Prop 2, politicians get to keep more of your money so they can waste more of your money.

Put more state tax money in "rainy day fund" instead of priorities like public transit

Source (https://www.sfgreenparty.org/endorsements/123-november-2026-endorsements)

Endorsement: NO on Proposition 2

Sacramento must prove to taxpayers they’re producing results for California before asking for any increases in funding. Proponents claim that Proposition 2 would stop politicians from overspending. Ironic, given that Sacramento’s budget is confirmed at $352 billion in FY 2026/27 and they’re asking for more handouts.

Yet another attempt to increase the insider slush fund.

Vote NO on Proposition 2

Prop 2 “CLAIMS” to create a bigger “Rainy Day” fund in CA budget. But, in reality, it creates a “new slush fund” for politicians to spend . Prop 2 would “gut” the current voter-imposed “spending limit” on CA politicians. And, worse, it would virtually eliminates the requirement that taxpayers receive tax rebates, if revenues exceed the spending limit. NO on PROP 2.

**DECEPTION ALERT: Appears on your ballot with the politicians’ FALSE ballot title of “Increases State’s Rainy Day Fund.”

Prop 2 claims to create a bigger rainy day fund in the state budget, but in reality it creates a new slush fund for politicians to engage in more wasteful spending. Prop 2 eviscerates the current voter-imposed spending limit on state politicians. Worse, it virtually eliminates the requirement that taxpayers receive tax rebates if revenues exceed the spending limit. With Prop 2, politicians get to keep more of your money so they can waste more of your money.

**DECEPTION ALERT: Appears on your ballot with the politicians’ FALSE ballot title of “Increases State’s Rainy Day Fund.” Prop 2 claims to create a bigger rainy day fund in the state budget, but in reality it creates a new slush fund for politicians to engage in more wasteful spending. Prop 2 eviscerates the current voter-imposed spending limit on state politicians. Worse, it virtually eliminates the requirement that taxpayers receive tax rebates if revenues exceed the spending limit. With Prop 2, politicians get to keep more of your money so they can waste more of your money.

**DECEPTION ALERT: Appears on your ballot with the politicians’ FALSE ballot title of “Increases State’s Rainy Day Fund.” Prop 2 claims to create a bigger rainy day fund in the state budget, but in reality it creates a new slush fund for politicians to engage in more wasteful spending. Prop 2 eviscerates the current voter-imposed spending limit on state politicians. Worse, it virtually eliminates the requirement that taxpayers receive tax rebates if revenues exceed the spending limit. With Prop 2, politicians get to keep more of your money so they can waste more of your money.

**DECEPTION ALERT: Appears on your ballot with the politicians’ FALSE ballot title of “Increases State’s Rainy Day Fund.”

Prop 2 claims to create a bigger rainy day fund in the state budget, but in reality it creates a new slush fund for politicians to engage in more wasteful spending. Prop 2 eviscerates the current voter-imposed spending limit on state politicians. Worse, it virtually eliminates the requirement that taxpayers receive tax rebates if revenues exceed the spending limit. With Prop 2, politicians get to keep more of your money so they can waste more of your money.