Proposition 2

Increases State's Rainy Day Fund

What is it?

Prop 2 doubles the cap on California's rainy day fund, the Budget Stabilization Account, from 10% to 20% of General Fund tax revenue.

Yearly deposits

The fund is fed by a base deposit of 1.5% of General Fund revenue plus a share of capital gains taxes, the most volatile money the state collects. Good years produce a surge the state can bank, and bad years produce almost nothing. Today, any capital gains revenue worth more than 8% of tax revenue goes to the fund. Starting in 2027-28, Prop 2 keeps that rule but counts the portion above 10% at one and a half times its value, so the bigger the windfall, the harder the state saves. Once the fund hits the 20% cap, money that would have gone in can only be spent on infrastructure.

The Gann limit

Starting in 2027-28, reserve deposits stop counting against the state's constitutional spending limit (the Gann limit) until the year the money is pulled back out and spent.

Taking money out

Taking money out still requires the Governor to declare a budget emergency, and the Legislature can withdraw no more than half of the fund's balance in one year, unless money was already withdrawn the year before.

Read the full annotated legal text →

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Fiscal impacts

Prop 2 does not raise or lower any tax. It changes how much of the money the state already collects gets set aside instead of spent, and when that money can be spent. The Legislative Analyst's Office concludes that state budget reserves would be higher, which would make balancing the budget somewhat easier when revenues fall, and that the state might make more debt payments than it otherwise would through 2040. The LAO does not put a dollar figure on either effect, because both depend on how revenues actually come in.

Why is this on the ballot?

Changing the California Constitution requires voter approval. The Legislature passed ACA 20 with the required two-thirds vote in both houses.

According to Article XVIII of the California Constitution, amendments to the California Constitution initiated by the State Legislature must first be approved by a supermajority of both houses and the amendment must then be approved by voters with a simple majority of 50% + 1.

Placed on ballot by: The California Legislature, via Assembly Constitutional Amendment 20. Adopted by the Assembly and the Senate on June 25, 2026, and filed with the Secretary of State the same day.
Author: Assemblymember Jesse Gabriel