Californians will vote this November on whether to expand the state’s budget reserves.

Proposition 2, which will appear on the November ballot, was introduced by Democrat state legislators. If passed, the measure will expand California’s Budget Stabilization Account – or the “rainy day fund” – where funds are deposited during normal fiscal years and withdrawn when the governor declares budget emergencies.

The proposition would increase the maximum size of the rainy day fund from 10% to 20% of annual tax revenue and expand the number of required contributions from capital gains taxes for the reserves.

If the measure passes, deposits into the reserves will not count towards California’s annual budget limit until the money is withdrawn.

Jerry Nickelsburg, an adjunct professor of economics at the UCLA Anderson School of Management, said while the increase would reduce year-to-year fluctuations in the state budget, prior research suggested that fund amounts would need to be around 30% to 40% of annual revenue to effectively stabilize California’s expenditures.

“Whether it’s optimal or not is an open question, but that is a derived number to smooth out volatility in resources available for public finance,” Nickelsburg said.

Newsom declared two budget emergencies during his term – one in 2020, in response to the COVID-19 pandemic, and another in 2024, when California faced a shortfall of $55 billion after tax revenues fell short of projected values. Newsom also withdrew $12.2 billion from the reserves in 2024 and 2025 to stabilize the state budget.

Daniel Mitchell, a professor emeritus at the UCLA Anderson School of Management and professor at the Luskin School of Public Affairs, said in an emailed statement that while the state can raise the percentage of funds it is allowed to save into the rainy day fund, the total amount in the state’s reserves are decreasing because budget expenditures exceed state revenue.

“If the rainy day fund is going up, but the total of all the funds in which saving can occur is going down, you are net dissaving,” Mitchell said in the statement. “If reserves keep falling, eventually you will have a crisis once they are exhausted.”

Nico Townsend, a UCLA graduate student and a member of the Young Democratic Socialists of America, said that while they support the expansion of the rainy day fund, they believe more substantial tax reforms are needed.

Townsend added that the governor should withdraw funds from the rainy day fund to prevent cuts to essential state programs such as education and healthcare, even without active budget emergencies.

“You have to have plumbing. Things that we need as a state that shouldn’t be defunded no matter what,” Townsend said. “And if they do need to be defunded, all other avenues need to have been attempted.”