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Prop 2 Cheat Sheet: Rainy Day Fund, Paying Off State Debt

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Proposition 2 will appear on California's Nov. 4, 2014 ballot.

California is $300 billion in debt, a total it owes largely to pension and retiree health benefits, as well as local governments. In the broadest terms, Proposition 2 calls to pay down this debt and to save money for emergencies.

Under the measure, each year the state would pay off a minimum of around $800 million in debt, and put a minimum 0.75 percent of the general fund -- that's around $800 million today -- into savings for things like natural disasters or budget deficits. Prop 2 would also establish a reserve for school and community college districts -- something the state does not currently have.

At the moment, the state replenishes around $3 billion a year into its rainy day fund, which is capped at $8 billion. Prop 2 would allow the fund to grow to 10 percent of general fund revenues, which if in place today would cap it around $11 billion.

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The measure also establishes maximum amounts for debt spending and emergency savings each year. In good economic years, when tax revenues from capital gains taxes are strong, the state could spend $2 billion on debt payments, and stash another $2 billion away into the rainy day fund.

During official budget "emergencies," the governor and Legislature would have to agree to either take money out of the fund to address emergencies or put less than the minimum amount into the rainy day fund. There are only two scenarios in which Prop 2 allows this: a natural disaster or when there is insufficient money to keep general fund spending at the highest level of the preceding three years.

The new fund for school and community college districts would see deposits in above average economic years only. The money in it would be used to soften the blow to schools during bad economic years when state funding is lower.

But the measure does set a cap on the amount of money that individual districts could keep for their own reserves. Prop 2 would dictate the amount that districts could place into reserves. For most districts, that amount would be between 3 and 10 percent of their annual budget, depending on size. For some districts, Prop 2 could mean smaller reserves during some years.

It's anticipated that Prop 2 would save California money by way of paying down debt faster, though it's hard to say what impact it would have because its dependent on the economy and future decisions by Legislators.

Key Points:

Prop 2 calls to pay down California's $300 billion of debt and save for future budget emergencies

Would require the state to pay off around $800 million in debt each year for 15 years and deposit the same amount into a rainy day fund. After 15 years, the Legislature could opt to continue paying off debt, or just save for emergencies

Increases the size of the existing rainy day fund from $8 billion to around $11 billion

Sets up a reserve fund for school and community college districts -- something the state currently does not have. Caps reserves individual school districts can save in reserve funds to between 3 and 10 percent of their annual budget, depending on size

What Your Vote Means:

A YES vote means California will pay down around $800 million in debt each year for 15 years, and save the same amount each year for emergencies

A YES vote means that the state's rainy day fund will be increased from $8 billion to around $11 billion

A YES vote means the state will create a reserve fund for schools and community colleges, which it does not have

A NO vote means that school districts' reserve funds will not be capped

Principal Supporters:

Sean Parker, tech entrepreneur
Brown for Governor 2014
California Alliance for Jobs - Rebuild California Committee
California Democratic Party
California Republican Party

Principal Opponents:
Educate our State
Alliance of Californians for Community Empowerment
Action
Californians United to Reform Education

Click here for full text of Proposition 2.

NOTE: The author of this post -- not the proponents of each measure -- selected the aforementioned key points for each ballot measure. They do not represent all of the provisions detailed in 2, rather they are intended to offer the salient details.

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