What Would Proposition 42 Mean for California?

What Would Prop. 39 Do?

Prop. 39 would amend California’s Constitution to add new voter ID requirements that would affect current and future voters. The measure would also impose new responsibilities on state and local officials related to election administration. Specifically, Prop. 39:

Requires Elections Officials to “Use Best Efforts” to Verify Every Registered Voter’s Citizenship Status

Current Law

Californians are required to be US citizens to vote.¹California Elections Code, Section 2101(a). There are two exceptions: Oakland and San Francisco allow certain noncitizens to vote in local school board elections. To register to vote, a person must declare in writing, under penalty of perjury, that they meet all voter eligibility requirements, including that they are a US citizen.²California Elections Code, Section 2150(b). Under federal law, state motor vehicle agencies — like California’s Department of Motor Vehicles (DMV) — must provide residents with the opportunity to register to vote when they apply for or renew a driver’s license or state ID card and/or change their address. In California, this is known as Motor Voter. DMV customers who indicate that they are eligible to vote are registered to vote by the Secretary of State (SOS) unless they opt out. However, the DMV does not send to the SOS information regarding customers who indicate they are not eligible to vote. Falsely claiming to be a US citizen on a voter registration application and attempting to vote would expose a person to state felony charges as well as the possibility of deportation under federal law.³For example, see California Elections Code, Section 18560(a), 8 U.S.C. Section 1227(a)(6)(a), and 18 U.S.C. Section 611.

In addition, state law makes it a crime to:

• Vote or attempt to vote more than once in an election,
• Impersonate or attempt to impersonate a voter in an election, or
• Apply for or cast a vote-by-mail ballot by fraudulently signing the name of a fake person, another qualified voter, or a person who is not qualified to vote.⁴California Elections Code, Section 18560(b)-(c) and Section 18578.

A person who is convicted of any of these crimes could be imprisoned for up to three years.

Prop. 39

Prop. 39 would require state and county election officials to “use best efforts” to verify, using “government data,” that registered voters are US citizens. The measure does not define “best efforts” or what constitutes “government data.” In addition, election officials would have to annually report the share of registered voters in each county whose citizenship status has been verified.

Requires Voters to Present Additional Identifying Information When They Cast Their Ballot

Current Law

All states, including California, already have voter ID requirements as required by federal law. For example, to register to vote, Californians must provide a California driver’s license or state ID number or the last four digits of their Social Security Number (SSN) if they lack a driver’s license or ID card. Californians who lack a driver’s license, a state ID card, or a SSN are assigned a unique identifier to validate their registration. Californians generally are not required to present an ID when voting.⁵Californians may need to show an acceptable form of ID when they vote by mail or in person if all of the following apply: 1) they’re voting for the first time in a federal election, 2) they registered by mail or online, and 3) they did not provide a California ID or SSN when registering. Acceptable forms of ID include, but aren’t limited to, a California driver’s license or state ID card, a US passport, a student or military ID, a utility bill, and a bank statement.

When voting by mail, California voters sign the outside of their ballot envelope, and elections officials verify the signature before counting the ballot.⁶California Elections Code, Section 3011(a)(7) and Section 3019. Voters must be given an opportunity to correct or “cure” their ballot if they failed to sign the envelope or if their signature does not match the signature on file.⁷California Elections Code, Sections 3019(c)-(e).

When voting in person, California voters state their name and address and sign a list of registered voters under penalty of perjury.⁸California Elections Code, Section 14216(a). While election officials do not verify the signatures of in-person voters before counting their ballots, counties have procedures in place to prevent voter fraud.⁹For example, in many counties, poll workers are able to look up voting records in real time to ensure that a voter has not already cast a ballot in the election. This applies to counties that participate in California’s Voter’s Choice Act as well as to counties that have adopted the Sign, Scan, and Go option. As noted above, it is a crime in California to fraudulently vote in an election, to vote more than once, or to impersonate another voter. Penalties range from up to one year in a county jail to up to three years in state prison.

Prop. 39

Prop. 39 would impose new requirements on Californians to cast a ballot in person or mail a ballot.

To vote in person:

• Voters would have to present a “government-issued” ID when they arrive at their polling place. Prop. 39 does not specifically define what “government-issued” ID means, so the Legislature would need to clarify which types of ID a voter could present to prove their identity.¹⁰Prop. 39 says broadly that “government-issued” ID “means documentation that allows conclusive verification of the voter’s identity.”

To vote by mail:

• All new and existing voters would have to select a “government-issued” ID that would be reflected in their “voter registration record.” This requirement effectively means that people who are currently registered to vote would have to re-register to provide their chosen ID to election officials.
• When voting, voters would have to write on the outside of their ballot envelope the last four digits of a “unique identifying number” from the “government-issued” ID that they selected for the purpose of voting.¹¹The government-issued ID that voters choose for this purpose would have to subsequently be made available to them “on request by phone or electronically.”
• Election officials would verify that the four digits written on the envelope match the last four digits of the ID number in the voter’s registration record.
  

Requires the State to Create a New Voter ID Card

Current Law

California currently allows Californians to apply for three types of ID cards in addition to drivers’ licenses that are used to prove identity or age.¹²The ID cards are issued by the California Department of Motor Vehicles as alternatives to a driver’s license and cannot be used to operate a motor vehicle.

Prop. 39

Prop. 39 would require the state to provide a voter ID card to eligible voters who request one. Voters could use this optional ID as their “government-issued” ID for voting by mail or in person. This card would be provided to voters free of charge.

Requires Ongoing State Audits of How the State and Counties Are Complying with Prop. 39

Current Law

California’s independently elected Secretary of State oversees all elections in the state, including ensuring election laws are enforced, testing and approving voting equipment, compiling election returns, and certifying election results.

In addition, California’s independent, nonpartisan State Auditor conducts performance audits and investigations of various state and local government agencies and recommends solutions for improving services. However, the State Auditor currently does not have a formal, ongoing role in auditing California’s elections or evaluating election administration.

Prop. 39

Prop. 39 would require the State Auditor, in odd-numbered years, to audit state and county compliance with Prop. 39 and report any recommendations for improvement.

Requires the State Legislature to Pass Laws to Implement Prop. 39

Prop. 39 would require the Legislature to “promptly enact laws” to implement the measure. For example, legislators would have to define which kinds of “government-issued” ID would be acceptable for voting as well as clarify what it means to make a “best effort” to verify a voter’s citizenship status. Prop. 39 would also require the Legislature to establish rules for military and overseas voters that are consistent with federal law.

Allows Citizens to Sue the State or Any County for Not Complying with Prop. 39

Prop. 39 would allow private citizens to sue the state and/or any county for any alleged noncompliance with the initiative. The measure does not specify what kind of evidence would be required to file a lawsuit.

How Would Prop. 39 Affect Californians and the State?

Prop. 39 Would Waste Resources By Addressing a Nonexistent Problem

The voter ID requirements that Prop. 39 would establish provide a “solution” to a nonexistent problem. This measure is based on the false premise that voter fraud — casting a ballot when one is not eligible to vote — is undermining election integrity. However, research shows that voter fraud is exceedingly rare. For example:

• Using a comprehensive database tracking election fraud that was created by the right-wing think tank Heritage Foundation, the Brookings Institute found across more than 200 federal elections held in recent decades, the share of fraudulent votes cast were infinitesimally small — ranging from roughly 3 to 15 votes out of 10 million in seven states with close election outcomes. The study concluded that “isolated instances of fraud do not constitute a widespread trend” and that “no election outcome in the US has ever been altered by ballot fraud.”
• Summarizing findings across numerous academic studies and investigative reports, the Brennan Center for Justice concludes that cases of voter impersonation fraud are extremely rare and do not happen “on a scale even close to that necessary to ‘rig’ an election.” For instance, their seminal report, The Truth About Voter Fraud, concluded that “it is more likely that an individual will be struck by lightning than that [they] will impersonate another voter at the polls.”

Voter fraud among noncitizens is also extremely rare. The Brennan Center synthesized findings from comprehensive studies, state investigations, and nationwide surveys across more than two decades and concluded that “actual incidents of noncitizens voting is not a significant occurrence.” For instance:

• One national survey of 44 election administrators representing 42 jurisdictions in 12 states, including officials in eight of the 10 jurisdictions with the largest populations of noncitizens nationally, found that in the 2016 election, officials referred only about 30 incidents of suspected noncitizen voting for further investigation or prosecution — amounting to 0.0001% of votes cast.
• The Bipartisan Policy Institute concluded that “there is no evidence that noncitizen voting has ever been significant enough to impact an election’s outcome.” Allegations of noncitizens voting often come out of voter registration audits, but further investigation into these claims often shows that individuals were flagged as noncitizens erroneously.
• The libertarian think tank Cato Institute found that “there is no good evidence that noncitizens voted illegally [in the 2020 election] in large enough numbers to actually shift the outcome of elections or even change the number of electoral votes.”

Additionally, while proponents of Prop. 39 argue that imposing additional ID requirements will strengthen voters’ trust in California’s election process, evidence for this claim is lacking. One study found that registered voters had roughly equal confidence that votes were counted accurately whether they were in states with strict voter ID laws or states with the minimum ID requirements mandated by federal law.

Subsequent studies by researchers at the University of California Riverside and Western Washington University looking at voter perceptions in 2014 and following the 2020 US presidential election found that strict voter ID laws and the quality of election administration more generally had little to no effect on voter confidence. This and other research suggests this may be because voters view election laws through a partisan lens and their confidence may be more heavily influenced by partisan rhetoric and whether their preferred candidate wins or loses an election.¹³See Lonna Rae Atkeson, Eli McKown-Dawson, and Robert M. Stein, “The Costs of Voting and Voter Confidence,” Political Research Quarterly 78, no. 1 (2025); Shaun Bowler and Todd Donovan, “A Partisan Model of Electoral Reform: Voter Identification Laws and Confidence in State Elections,” State Politics & Policy Quarterly 16, no. 3 (January 11, 2016); and Shaun Bowler and Todd Donovan, “Confidence in US Elections After the Big Lie,” Political Research Quarterly 77, no. 1 (October 23, 2023).

Prop. 39 would impose additional voter ID requirements when robust voter safeguards are already in place, needlessly lengthening the process of voting without adding any extra security. For example, California currently requires individuals to verify their identity when registering to vote and when voting in-person and by mail:

• To register, individuals must show a California Driver’s License or state ID or the last four digits of their Social Security number (SSN) and certify under penalty of perjury that their voter registration information is correct and that they are a US citizen. Additionally, these forms of ID are securely verified by officials using Department of Motor Vehicle or Social Security Administration records. If individuals do not have these forms of ID, they can verify their identity with election officials using other forms of identification, such as bank statements, paychecks, or government checks.
• To vote in-person or by mail, individuals may need to show proof of identity if it’s their first time voting in a federal election and they did not provide a California ID or SSN when registering. Otherwise, election officials verify the identity of individuals who vote in person by checking individuals’ names and addresses against a list of registered voters and requiring voters to sign a roster. For those who vote by mail, voters are required to sign their ballot envelope, used for signature verification, and declare under penalty of perjury that they are who they claim to be and reside within the precinct in which they are voting. Federal and state law also impose requirements designed to promote the maintenance of accurate lists of eligible voters.

In addition to these voter identification safeguards, voter fraud is a felony under state law that could result in imprisonment if convicted. Falsely claiming to be a US citizen on a voter registration application and attempting to vote could also result in deportation under federal law. These costs far outweigh the minimal benefit of adding an additional vote, as one-vote margin elections are rare and the probability that one vote will change an election outcome, particularly when the electorate is large, is extremely low.

Prop. 39 Would Create Barriers to Voting for Millions of Eligible Voters

The voter ID requirement in Prop. 39 would create roadblocks to voting for millions of voting-age Californians. For example:

Millions of Voting-Age Californians Lack an Up-to-Date Driver’s License

A driver’s license is one of the most common forms of ID. However, a survey conducted by VoteRiders and the Center for Democracy and Civic Engagement (CDCE) found that among voting-age Californians who are US citizens:

• About 2.7 million (10.8%) do not have a driver’s license.
• More than 3 million (12.6%) have a driver’s license that is expired, is from another state, and/or lacks updated information such as a current address or name.
• People of color, young people, people with less education, people with lower incomes, and people with disabilities are less likely to have a driver’s license.

About One-Quarter of Voting-Age Californians Without a Driver’s License Also Lack an Official California State ID Card

Nearly one-fourth (24%) of Californians without a driver’s license also lack a state ID card, according to VoteRiders and CCDE. This same group of voting-age citizens is very likely to lack other forms of ID as well:

• Only 29% of voting-age Californians without a driver’s license or a state ID have a current passport that is readily accessible, and
• Only 13% of these Californians have a current public school ID (high school or college) as a form of identification.

Navigating ID Requirements Can Be Confusing and Costly

Voter ID laws assume voters have the resources and knowledge to understand that they lack qualifying ID. However, VoteRiders and CDCE report that among voting-age citizens in California:

• 6 out of 10 express confusion about the state’s current in-person voter ID requirements.
• Many are also concerned about the cost and wait time to obtain an ID.

Voter ID Requirements Disproportionately Impact Communities of Color

 A study published in The Journal of Politics that analyzed voter registrants in Texas who voted without ID in 2016 found that:

• Registrants voting without ID were disproportionately Black and Latinx compared to voters casting ballots with ID.
• Registrants without ID were less likely to vote when a strict ID mandate was in place, and more likely to be Black and Latinx, than those voting with ID.

Voter ID Requirements Would Disproportionately Impact Young Californians

Young Californians (ages 18-34) make up 30% of the state’s adult population, but only 21% of likely voters, according to the Public Policy Institute of California. Additionally, compared to older adults, young Californians were more likely to be people of color, less likely to own a home, and more likely to have an annual income below $60,000.

Prop 39’s voter ID barriers would disproportionately affect young Californians. This is because:

• Young people are far more likely to move than older adults, meaning that any ID they do possess is likely to be out of date unless they consistently re-register to vote.
• Young Californians are more likely to cast provisional ballots, which are required when voters are not on the official registration list at a polling location. 
• Young Californians are less likely to possess a driver’s license than older adults.
• Young people already report higher costs to voting than older adults, with many citing a loss of time, resources, and work opportunity. 
• A young person is more likely to learn about voting and civic engagement if they go to college, but 28% of California students do not enroll in college within 12 months of graduating high school. As a result, if voters pass Prop. 39, a large share of young people could remain uninformed about the new, restrictive voting requirements.

Prop. 39 would make navigating the voting process more challenging for a significant portion of California’s voters, and would especially impact Californians who already face barriers to voting. In a state where voter turnout has recently been lower than the national average, adding new, costly, and unnecessary administrative hurdles could lead to many more Californians opting out of voting altogether.

Prop. 39 Would Increase the Risk of Identity Theft

If Prop. 39 passes, Californians who vote by mail would have to write on the outside of their ballot envelope the last four digits of an identifying number from a government-issued ID. These four digits would have to match the ID on file with the county election office in order for their ballot to be counted.

Writing sensitive numbers on a ballot envelope could increase the risk of identity theft. Envelopes already include the voter’s name, address, and signature. Adding a partial number from a voter’s Social Security card or driver’s license, for example, would expose that number to fraudsters. These bad actors would have an additional — and consequential — data point to work with in creating a fraudulent profile to use in phishing and other scams.

The risk of identity theft would continue long after a ballot is mailed or dropped off. State and federal law require election materials, including ballot envelopes, to be stored for six to 22 months.¹⁴See California Elections Code, Section 17301 and Section 17302. This lengthy storage period increases the potential for sensitive numbers to be accessed and misused.

More broadly, Prop. 39’s requirement to write sensitive numbers on the outside of the ballot envelope is out of step with expert security guidelines. The federal government, for example, urges organizations to minimize the collection and retention of personally identifiable information “to what is strictly necessary to accomplish their business purpose and mission.”¹⁵US Department of Commerce, National Institute of Standards and Technology, Guide to Protecting the Confidentiality of Personally Identifiable Information (PII) (April 2010), ES-2. These same guidelines note that “[p]artial identifiers, such as the first few digits or the last few digits of SSNs, are also often considered [personally identifiable information] because they are still nearly unique identifiers and are linked or linkable to a specific individual.”¹⁶Protecting the Confidentiality, 2-2, endnote 21.

If Prop. 39 is approved, the legitimate fear of identity theft could deter many Californians from voting by mail. This could suppress voter turnout since voting by mail is the easiest and most common way for Californians to cast a ballot, and some Californians may not be willing or able to travel to a polling place to vote in person.

Prop. 39 Would Add Burdensome Citizenship Verification Requirements

If Prop. 39 passes, election officials would be required to “use best efforts” — currently undefined — to verify the citizenship status of registered voters, using “government data”  — also lacking specifics — for this purpose. (The Legislature would have to define these terms in state law.) In addition, election officials would have to annually report the percentage of registered voters in each county whose citizenship status was verified. These requirements are burdensome, unnecessary, and harmful.

First, as noted above, voting by noncitizens is extremely rare. Numerous safeguards currently exist to ensure that noncitizens do not register to vote, and any non-citizen who tried to vote would face stiff penalties, including fines, imprisonment, and deportation. Prop. 39 would add needless, burdensome, and costly requirements to California’s rigorous voter verification process.

Curious About Other Ballot Propositions?

Browse our collection of resources covering California’s statewide ballot measures to help you understand what’s at stake for California this November.

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Second, requiring citizenship verifications is nearly guaranteed to result in some citizens being incorrectly flagged as noncitizens and potentially removed from the voter rolls. Federal databases that election officials would likely use to verify voters’ citizenship are riddled with errors, inconsistencies, and outdated information. For example, an individual’s name may appear differently across various databases, possibly due to a name change following marriage or a simple spelling error. Furthermore, naturalized US citizens’ current citizenship status may not be accurately reflected in all government records.

Even under the best circumstances, federal agencies make “mistakes when identifying people’s citizenship or immigration status.” Moreover, a key government database that President Trump has tried to compel states to use to verify voters’ citizenship status has produced “persistent” errors. As one election official in Missouri put it: “It really does not help my confidence … that the information we are trying to use to make really important decisions, like the determination of voter eligibility, is so inaccurate.”

Incorrectly identifying California voters as noncitizens would:

• Deeply harm the specific individuals involved. Voters whose citizenship is mistakenly cast in doubt would need to navigate burdensome processes at multiple levels of government to fix a problem that was not of their making. In addition, US citizens who are mistakenly identified as noncitizens could lose their ability to vote if they miss or don’t receive a notice from their county election office and run out of time to correct the error before an upcoming election.
• Undermine public confidence in elections. Given the flaws in federal databases and the “errors inherent in any large-scale data-matching,” election officials would likely end up finding data discrepancies — discrepancies that would wrongfully call into question the citizenship status of some registered voters. Under this scenario, Prop. 39 would require counties to report that they could not verify some voters’ citizenship, even if this outcome was entirely due to defective federal data rather than fact. This, in turn, would needlessly undermine public confidence in California’s elections.
• Fuel baseless conspiracy theories and frivolous lawsuits. Election deniers and other critics could use flawed citizenship findings to prop up baseless claims about “widespread” voter fraud. They could also use Prop. 39’s private right of action to file lawsuits aimed at forcing election officials to act on flawed data, potentially blocking citizens from exercising their right to vote. Prohibiting certain US citizens from voting could change the result of a close election — precisely the kind of illegitimate outcome that Prop. 39’s proponents claim they are trying to prevent.

Proposition 39 Would Create Substantial Costs at the State and Local Levels Without New Revenue to Pay for Them

Prop. 39 would impose substantial costs on state and local governments, but includes no new revenue to pay for these expenses. While the magnitude of the fiscal impact is uncertain, Prop. 39 is expected to increase annual state and local costs by tens of millions of dollars to low hundreds of millions of dollars, according to estimates from California’s nonpartisan Legislative Analyst’s Office (LAO).

State and local leaders would face the prospect of shifting funding from existing public services to make room in their budgets for the costs imposed by Prop. 39. These costs would hit just as state and local budgets are absorbing the impact of massive federal funding cuts to health care and food assistance imposed by H.R. 1, which President Trump signed into law in 2025. For example, counties have to implement more stringent federal work requirements for the Medi-Cal and CalFresh programs that will require hiring more staff and implementing complex rules. Overall, H.R. 1 is estimated to raise counties’ annual costs by $6 billion to $9.5 billion.

The LAO suggests that Prop. 39 could produce some “savings” if fewer Californians were registered to vote due to the measure’s changes. In other words, savings would result from reduced voter participation as Prop. 39’s barriers to voting were implemented. Even so, any budget savings “likely would not exceed the costs of the measure,” according to the LAO.

Ultimately, the fiscal impact of Prop. 39 would depend on choices made by the state, counties, and voters. For example:

• The cost of the new state-issued voter ID would depend on the complexity of the card’s design, which would be determined by state leaders, as well as on how many voters request a card.
• Staffing for the State Auditor’s office would need to expand substantially due to the new requirement for ongoing, bi-annual audits of all 58 counties and the state.
• Staffing for the Secretary of State’s office would need to grow to provide additional oversight and support for county election offices and implement various requirements of Prop. 39, such as verifying that registered voters are US citizens. However, the magnitude of any staffing growth would depend on how the state chooses to implement Prop. 39.
• Staffing for county election offices would need to grow due to the mandate to verify registered voters’ citizenship status. However, the magnitude of any staffing growth would depend on the requirements of the state’s implementing legislation.
• Informational technology systems at the state and local levels could need to be created or upgraded to verify registered voters’ citizenship status. The cost of these changes could be substantial, but would depend on the requirements of the state’s implementing legislation.

Regardless of the magnitude of Prop. 39’s costs, the result would be the same: elected officials would face difficult choices about how to accommodate these new expenses in their budgets without any new revenue to pay for them. Redirecting existing revenue to Prop. 39 would leave less funding for other vital public services, including services for Californians with low incomes and communities of color — the same voters who would most likely be impacted by Prop. 39’s new, and unnecessary, voting requirements.

Prop. 39 Is Part of a Nationwide Effort to Restrict Voting and Limit People’s Say in Policymaking

Prop. 39 Is Aligned with Broader Efforts to Restrict Voting

Prop. 39 is part of a national wave of proposals — including strict voter ID laws — that would make it more difficult for Americans to exercise their constitutional right to vote, even as voter fraud, including voting by noncitizens, is virtually nonexistent and inconsequential. These efforts have accelerated as unsubstantiated voter fraud rhetoric has increased, particularly following President Trump’s lies about a “stolen” 2020 presidential election that he has continued to perpetuate throughout his second term.

This fall, voters in six states, including California, will consider measures to impose stricter voter ID laws. Already this year, eight states have approved more stringent requirements and one other state enshrined voter ID requirements in the state’s constitution.

Last year marked the first year since 2011 that states enacted more laws to restrict voting rights than to expand them. At least 17 states in 2025 enacted 32 laws that restrict voting rights — tying with 2021 for the largest number of restrictive voting rights laws passed since the Brennan Center for Justice began tracking such legislation in 2011. This included more than a dozen states that imposed harsher voter ID rules between 2021 and 2025, including six states that did so last year alone — efforts typically led by Republicans.

Additionally, House Republicans, with strong support from President Trump, have been working to advance federal legislation, the SAVE Act, which would require people to show documents demonstrating US citizenship, like a passport or birth certificate, to register to vote, even though voting by noncitizens is extremely rare and inconsequential for election outcomes.

Renowned historian Dr. Carol Anderson, author of One Person, No Vote: How Voter Suppression Is Destroying Our Democracy, has warned that the SAVE Act is “a voter purge bill dressed up as security,” as it could disenfranchise eligible voters, given that over 21 million US citizens lack ready access to the required documents. Several states have recently enacted legislation similar to the SAVE Act.

Investigative reporting by professor Ese Olumhense has also found a surge in legislation across states to increase the involvement of law enforcement in the voting process following the 2020 election. These state-led efforts, alongside federal court rulings that have continued to dismantle the Voting Rights Act in recent years, disproportionately threaten the voting rights of communities of color and represent “the latest chapter in the long history of US voter suppression.”

Restricting Voting Rights Limits People’s Say in How Public Resources Are Raised and Spent

Voting is the cornerstone of democracy. It allows citizens to have a say in public policies that affect their lives and communities, giving them a voice in one of core functions of government — determining how public resources are raised and spent. In her book, The Price of Democracy, Dr. Vanessa Williamson documents how democracy and taxation developed together throughout US history. This is because citizens who have a voice in policymaking are more willing to pay taxes, as they have a stake in how those taxes are used. Likewise, governments that depend on taxation have an incentive to listen to their voting — and taxpaying — citizens. 

Dr. Williamson’s work shows that throughout US history, “the battles over the breadth of our democracy are, with startling regularity, fights about taxes.”¹⁷Vanessa S. Williamson, The Price of Democracy: The Revolutionary Power of Taxation in American History (New York, NY: Basic Books), 6. She explains that “the possibility that people of moderate means would have a say over the tax system has persistently led wealthy people to undermine governments’ democratic practices and fiscal capacity,” especially “when they could play on racial animus” to divide the working class.¹⁸Price of Democracy, 248 and 8.

This history is important for understanding current efforts across the nation to erect barriers to voting. Although policies like strict voter ID requirements may appear equitable because they apply to all voters universally, they disproportionately threaten to make it harder for young people, people with low incomes, and people of color to vote.

The surge of such policies comes at a time when massive, unprecedented federal budget cuts are taking health care and food assistance away from people with low and moderate incomes to help pay for trillions of dollars in tax breaks for corporations and the wealthy. Many other pending federal actions, if successful, could also undercut families’ access to affordable housing, early care and education, and other essential public services.

To counter federal cuts to vital services, impacted communities are increasingly looking to state and local leaders to make taxes more fair and raise revenue for public investments. Yet the very people who would benefit the most from such investments are those inhibited the most by new hurdles to voting.

California Should Continue to Promote Voter Participation and Improve the Election Process

By focusing on a non-existent problem, Prop. 39 fails to address real election issues that California voters are concerned about. Recent polling by UC Berkeley’s Institute of Governmental Studies found that 8 in 10 California likely voters considered “defending democracy and protecting voting rights” very important when deciding who to support for governor in the June primary. Similarly, more than 7 in 10 California registered voters found it important for candidates running for president in 2028 and state leaders to prioritize efforts to “defend democracy and make voting more accessible.”

Prop. 39 fails to address these significant concerns. Instead, it would make voting less accessible for eligible voters, undercutting democracy. Rather than advancing harmful and unnecessary ID requirements, California should promote more robust voter participation while also continuing to improve the state’s election process.

Promoting Voter Participation

California has made strides to encourage voter participation, offering many avenues to make registration and voting more accessible. These include:

• Pre-registration for 16- and 17-year olds,
• Online registration,
• Same-day/conditional voter registration, 
• Voter registration at the DMV (Department of Motor Vehicles) through California’s Motor Voter program,
• Voting by mail, and
• Allowing student and military IDs as acceptable forms of identification (if required).

Despite these strong pro-voter policies, California still sees gaps in voter turnout, likely voters, and registration rates among people with lower incomes, communities of color, and young people. California’s leaders can continue to strengthen the state’s voter policies by:

• Exploring options for moving towards automatic voter registration, such as by revamping the Motor Voter program to register all eligible individuals. Currently, people can opt-out of voter registration at the DMV.¹⁹In 2024, the Legislature passed Senate Bill 299 to further streamline voter registration by building on the current system, but it was vetoed by Governor Newsom.
• Creating dedicated, ongoing funding to promote voter outreach and engagement efforts.
• Providing K-12 schools with the resources and training needed to promote civic education for students, families, and communities.

California has many options for improving voter accessibility, but Prop. 39 is not one of them. California’s current laws make registering and voting easy, enabling more eligible citizens to participate in elections, whereas Prop. 39 would make voting more difficult, increase the likelihood that people legally able to vote are erroneously blocked from doing so, decrease participation in California elections, and limit Californians’ say in how public tax dollars are raised and spent.

Improving the Election Process

State leaders can adopt commonsense reforms to promote more timely election results while maintaining California’s solid track record of election security, accurate counts, and robust voter access.

California takes longer than many states to count ballots and certify elections largely due to pro-voting policies and strict ballot-verification requirements designed to ensure accuracy and integrity. However, lengthy ballot-counting allows bad-faith critics to promote baseless conspiracy theories and undermine confidence in elections.

State leaders should consider several changes to speed up ballot counting and improve transparency of the vote count without undercutting election integrity and voter access. For example, state leaders could:²⁰For details about these and other recommendations, see California Voter Foundation, Ten Recommendations to Accelerate California’s Vote Count (July 27, 2026).

• Provide additional funding to county election offices for equipment, staff, and facilities,
• Help voters across the state to more quickly “cure” (correct) issues with the signature on their vote-by-mail (VBM) ballot envelope by developing a statewide electronic curing system,²¹Typical issues addressed through the “curing” process include missing signatures or a signature that does not compare to the signature associated with the voter’s registration record. As allowed by state law, some counties have implemented a “text-to-cure” system that allows voters to address signature issues by signing the screen of their phone or tablet and submitting it using a secure platform. Establishing a statewide electronic curing system — as proposed by AB 2604 (Berman) — would streamline the signature-curing process and help to cure more signatures faster, thereby speeding up ballot counting.
• Encourage more counties to offer “Sign, Scan, and Go” voting, which allows Californians to cast their VBM ballot in person without the ballot envelope for faster processing,²²This voting option, also known as “Sign and Go” voting, was offered by 31 of California’s 58 counties in the June 2026 primary election. This option speeds up ballot processing because voters cast their ballot directly into a ballot scanner or ballot box without the ballot envelope, eliminating the need for the ballot to be counted later. Voters using this option must provide their name and address and sign the roster for the voting location, and election officials verify in real time that the voter has not already cast a vote-by-mail ballot without the envelope. Some election officials remain concerned about how to securely and effectively implement this voting method. SB 1420 (Richardson) — passed by the Legislature on August 27, 2026 — aims to address these concerns by requiring the Secretary of State to develop uniform procedures for Sign, Scan and Go voting, which could encourage more counties to adopt this option.
• Educate voters about the importance of returning mail ballots earlier or voting in person in order to reduce the number of last-minute ballots requiring time-intensive signature verification, and
• Improve how the Secretary of State reports unofficial election results.

These and other reforms could help to accelerate ballot-counting and promote transparency while maintaining pro-voter policies that encourage a diverse range of Californians to make their voices heard in the electoral process.

Prop. 39 Supporters and Opponents

Prop. 39’s leading proponent is Republican State Assemblymember Carl DeMaio. Prominent supporters include the California Republican Party, Reform California, and Uline CEO Richard Uihlein.

Prominent opponents include California gubernatorial candidate Xavier Becerra, US Senator Alex Padilla, the American Civil Liberties Union (ACLU), Common Cause, the League of Women Voters, and the California Democratic Party.

What Would Proposition 2 Do?

Prop. 2 would amend the state Constitution to change several of the rules that govern California’s rainy day fund — the state’s primary budget reserve, known as the Budget Stabilization Account (BSA).¹California voters created the BSA in 2004 by passing Prop. 58 and reformed the BSA a decade later by approving Prop. 2 of 2014. For an analysis of Prop. 2 of 2014, see California Budget & Policy Center, Proposition 2: Should California Prioritize Paying Down Debt and Significantly Change State Budget Reserve Policies? (September 2014). In addition, Prop. 2 would modestly change the interaction between state reserves and the state spending cap, commonly called the Gann Limit. This section highlights the key changes that Prop. 2 would make if approved by voters in November.

Increases the Maximum Size of the Rainy Day Fund (BSA) to 20% of General Fund Revenues

Current Law

The state Constitution limits the size of the BSA to 10% of estimated General Fund tax revenues.²Specifically, the amount transferred to the BSA in any fiscal year may not result in a balance that exceeds 10% of estimated General Fund “proceeds of taxes.” Proceeds of taxes are estimated for the purpose of calculating the State Appropriations Limit (or Gann Limit) and tend to differ slightly from total General Fund revenues and transfers. When this limit is reached, any dollars that otherwise would go into the BSA must be spent on infrastructure.

Proposition 2

Prop. 2 would double the BSA cap to 20% of estimated General Fund tax revenues. If the 20% cap were ever reached, the dollars that would otherwise be deposited into the BSA would instead be spent on infrastructure, as under current law.

Changes How “Excess” Capital Gains Revenues Are Calculated to Save More in Strong Revenue Years

Current Law

The state Constitution requires some General Fund revenues to be set aside annually and requires additional General Fund revenues to be set aside when certain conditions are met. Generally speaking, 50% of these set-aside revenues are deposited into the rainy day fund, and the other 50% are used to pay down certain state debts.³As noted below, some set-aside revenues are owed to TK-14 education through the Prop. 98 minimum funding guarantee. This portion of set-aside revenues is governed by different rules and does not go toward the rainy day fund or state debt payments. These set-aside revenues are determined in two ways:

• 1.5% of General Fund revenues are automatically set aside every year. For example, if General Fund tax revenues were estimated to total $250 billion for a fiscal year, the state would need to set aside a total of $3.75 billion (1.5%), with half deposited into the rainy day fund (BSA) and the other half used to pay down certain state debts. Prop. 2 would not change this required annual transfer.
• In addition to this fixed annual transfer, the state is required to set aside “excess” capital gains revenues. This requirement is triggered in years when estimated General Fund tax revenues that come from personal income taxes on capital gains exceed a specified target: 8% of total General Fund tax revenues.⁴Capital gains are the profits realized from selling assets that have increased in value, such as stock shares or real estate. Revenues from capital gains can be volatile from year to year depending on market conditions. When this occurs, a portion of these “excess” capital gains revenues — specifically, the share that is not owed to TK-14 education through the Proposition 98 minimum funding guarantee — is split equally between building the BSA balance and paying down certain state debts.⁵The share of “excess” capital gains revenues that are owed to TK-14 education via Prop. 98 is subject to a different set of rules. See California Budget & Policy Center, Proposition 2: Should California Prioritize Paying Down Debt and Significantly Change State Budget Reserve Policies? (September 2014), p. 2.

Proposition 2

Prop. 2 would change how “excess” capital gains revenues are calculated in order to set aside more revenue for the rainy day fund and state debt payments. Under Prop. 2, there would be two categories of “excess” capital gains revenues, as follows:

• The first category of “excess” revenues would include capital gains revenues that total between 8% and 10% of General Fund tax revenues.
• The second category of “excess” revenues would equal 1.5 times the portion of capital gains revenues that are above 10% of General Fund tax revenues. For example, if there are $2 billion in capital gains revenues above the 10% threshold, the state would have to set aside a total of $3 billion ($2.0 billion * 1.5) — $1 billion more than is required under current law.

As under current law, the portion of these “excess” revenues that are not owed to TK-14 education through Prop. 98 would be split equally between the rainy day fund and certain state debt payments.

Expands the Types of State Debt That May Be Paid with Set-Aside Revenues

Current Law

The state Constitution requires that half of General Fund revenues set aside each year be used to repay certain state debts.⁶The revenues used to calculate this 50% requirement exclude set-aside revenues that are owed to TK-14 education through California’s Prop. 98 minimum funding guarantee. Currently, the state may only use these set-aside revenues to 1) prefund state retiree health benefits and/or 2) pay down unfunded liabilities associated with state‑level pension plans. In prior years, the state was allowed to use these set-aside revenues to pay down certain types of budgetary debt. This included payments owed to K-12 schools and community colleges as of July 1, 2014.⁷These payments went toward unfunded prior-year Prop. 98 obligations, including so-called “settle-up” obligations, which reflect the reconciliation of estimates of the annual Prop. 98 minimum funding level and the actual Prop. 98 guarantee. However, by 2019-20, the state had repaid all of the outstanding budgetary debt.

Proposition 2

Prop. 2 would update and expand the list of state debts that could be paid with set-aside revenues. Specifically, these funds could be used to:

• Repay federal unemployment insurance (UI) loans. Under Prop. 2, revenues set aside for state debt could be used to repay “federal loans made to the Unemployment Fund.” The measure does not specify whether Prop. 2 funds could be used to pay the interest as well as the principal on federal UI loans.
• Repay certain TK-14 education obligations. Under Prop. 2, the state could once again use set-aside revenues, during any fiscal year, to make certain payments owed to TK-12 schools and community colleges.⁸Specifically, Prop. 2 would allow revenues set aside for state debt payments to be used for “unfunded prior fiscal year General Fund obligations” pursuant to the Prop. 98 minimum funding guarantee. These include so-called “settle-up” obligations, which reflect the reconciliation of estimates of the annual Prop. 98 minimum funding level and the actual Prop. 98 guarantee. Under the original Prop. 2 (2014), the state was allowed to use set-aside revenues to pay down unfunded prior fiscal year General Fund obligations pursuant to Prop. 98, but only for debt accrued prior to July 1, 2014. That debt was repaid by the 2019-20 fiscal year. In addition, set-aside revenues could be used to help accelerate the phase-out of an outstanding debt tied to an accounting maneuver that state leaders adopted in the 2023-24 budget to address an issue related to the Prop. 98 minimum funding guarantee.⁹For a discussion of this accounting maneuver, see Legislative Analyst’s Office, The 2024-25 Budget: The Governor’s Proposition 98 Funding Maneuver (February 15, 2024).
• Repay General Fund loans to the Medi-Cal program. The 2025-26 budget transferred $4.4 billion from the state General Fund to the Medical Providers Interim Payment Fund to help cover higher-than-expected Medi-Cal costs. The budget delayed repayment of this loan, with payments starting in 2027-28 and potentially continuing for several years. Under Prop. 2, revenues set aside for state debt could be used to accelerate the paydown of the 2025-26 Medi-Cal loan or other Medi-Cal loans.

Extends the Debt-Paydown Requirement by 10 Years, to 2039-40

Current Law

The state Constitution requires 50% of set-aside revenues to be used to pay down certain state debts through the 2029-30 state fiscal year.¹⁰The revenues used to calculate this 50% requirement exclude set-aside revenues that are owed to TK-14 education through California’s Prop. 98 minimum funding guarantee. Starting in 2030-31, these payments become optional, and any set-aside revenues that are not used to pay down debt must be deposited into the rainy day fund.

Proposition 2

Prop. 2 would require 50% of set-aside revenues to go toward paying down state debts for an additional 10 years ending in 2039-40.¹¹The revenues that would be used to calculate this 50% requirement would continue to exclude set-aside revenues that are owed to TK-14 education through California’s Prop. 98 minimum funding guarantee. Starting in 2040-41, these payments would become optional, and any set-aside revenues that were not used to pay down debt would have to be deposited into the rainy day fund.

Changes the Relationship Between Deposits/Withdrawals and the Gann Limit

Current Law

The state Constitution requires that deposits into state reserves be counted as spending for the purpose of calculations required by California’s spending cap. This is the case even though tax dollars transferred to a reserve clearly will not immediately be spent through the budget. This rule was put in place by Prop. 4 of 1979, which created the state spending cap.¹²For simplicity, this discussion uses the word “spending.” However, Prop. 4 uses the technical phrase “appropriations subject to limitation.” See California Constitution, Article XIIIB, Section 5. This cap is formally known as the State Appropriations Limit, but is more commonly called the Gann Limit.¹³The spending cap applies to the state as well as to local governments.

In contrast, withdrawals from state reserves as well as expenditures of withdrawn funds do not count as spending for the purpose of the Gann Limit.¹⁴California Constitution, Article XIIIB, Section 5. In other words, under current constitutional rules, tax dollars count toward the spending cap when they go into a reserve, but do not count toward the cap when they come out.

As a result, in years when state revenues are growing rapidly and the state is at risk of exceeding the spending cap, state leaders cannot bolster California’s fiscal resilience by further building up reserves, because doing so would put the state over the spending limit.¹⁵Revenues that are projected to exceed the spending limit can only be used in a few narrow ways if state leaders want to avoid going over the cap. If the state exceeds the cap for two consecutive years, half must go to taxpayers and the other half must go to TK-14 education on a per-pupil basis.

Proposition 2

Prop. 2 would alter the relationship between deposits/withdrawals and the Gann Limit for two state reserves: the rainy day fund (BSA) and the Projected Surplus Temporary Holding Account.

• Prop. 2 would change the interaction between the BSA and the Gann Limit. Under Prop. 2, revenues would not count toward the state spending cap when they go into the rainy day fund, but would count when they are withdrawn.
• Prop. 2 would change the interaction between the Projected Surplus Temporary Holding Account and the Gann Limit. The holding account is used to temporarily set aside anticipated surplus revenues for up to one year. Under Prop. 2, revenues deposited into the holding account — up to a cap — would not count toward the Gann Limit, but they would count when they come out. This cap would be equal to 10% of total General Fund tax revenues in the year the transfer is made. For example, if General Fund tax revenues were estimated to total $250 billion, then up to $25 billion could go into the holding account without counting toward the Gann Limit (but would count toward the Gann Limit when withdrawn). However, if the holding account deposit exceeded $25 billion, then the excess amount would count toward the Gann Limit (but would not count when withdrawn).

Changes How a Budget Emergency May Be Declared

Current Law

The state Constitution requires the governor to declare a budget emergency in order to:

• Suspend or reduce a required deposit into the rainy day fund (BSA) or the Public Schools System Stabilization Account (PSSSA), or
• Withdraw funds from the BSA or the PSSSA.¹⁶For a description of the PSSSA, or schools reserve, see California Budget & Policy Center, California’s Rainy Day Fund and Other Budget Reserves Overview (April 2026).

To declare a budget emergency, the governor signs a proclamation. It may be signed very late in the fiscal year, including after the June 15 constitutional deadline for the Legislature to pass the budget. For example, in 2025, Governor Newsom issued a budget emergency proclamation on June 27 — well after the Legislature passed the budget and just three days before the end of the 2024-25 fiscal year.

This misaligned timing puts the Legislature in the awkward position of passing a budget that assumes a budget emergency before the governor has made it official.

Proposition 2

Prop. 2 would create a simplified pathway for declaring a budget emergency. This alternative pathway is intended to prevent a situation where the governor suggests a budget emergency will be declared, but then fails to issue a proclamation before the Legislature’s June 15 constitutional deadline to pass the budget.

Prop. 2 would allow the governor’s May Revision, which is due out by May 14, to constitute the proclamation of a budget emergency if two conditions were met:

• First, the conditions required for a budget emergency would have to exist.
• Second, the May Revision would have to propose suspending or reducing a required transfer to the BSA or PSSSA and/or withdrawing funds from one or both of these reserves.

In other words, if voters approve Prop. 2, the governor would no longer have to issue a formal proclamation in order for a budget emergency to be operative.

What Would Proposition 2 Not Do?

While Prop. 2 would make a few changes to California’s rainy day fund as well as modestly revise how the Gann Limit works, the measure would largely leave the current rules in place. In addition, Prop. 2 would not touch the state’s constitutional funding requirement for TK-14 schools and community colleges, known as Prop. 98. For example, Prop. 2:

• Maintains the requirement to set aside 1.5% of state General Fund tax revenues each year. Half of these revenues would continue to go into the rainy day fund (BSA), and the other half would continue to be used to pay down certain state debts.
• Continues to allow state leaders to reduce or suspend deposits into the rainy day fund to address a budget emergency, and maintains the current definition of “emergency.” BSA deposits could continue to be reduced or suspended in the event of a budget emergency, which would continue to be defined as 1) a disaster or extreme peril or 2) insufficient General Fund revenues to meet a prior-year spending level.
• Continues to limit the amount of money that may be withdrawn from the rainy day fund to address a budget emergency. State leaders could continue to withdraw only the amount needed to address a budget emergency, and no more than half of the funds could be taken out in the first year of an emergency.
• Continues to prohibit state leaders from suspending debt payments to address a budget emergency. State leaders would continue to be prevented from reducing or canceling required debt payments, even if the state faced a disaster or a severe budget shortfall.
• Does not make any changes to the Prop. 98 minimum funding guarantee for TK-14 education. Under the state Constitution, the state is required to set aside a portion of revenues for schools and community colleges each year based on various inputs and formulas. Prop. 2 does not make any changes to the formulas or inputs that determine the annual minimum guarantee calculation.
• Maintains the current rules for California’s TK-14 education reserve. Prop. 2  does not change the rules governing the PSSSA, the state’s reserve for TK-12 schools and community colleges. For example, all of the conditions required to trigger a deposit into the PSSSA would remain intact. This includes strong capital gains-related income tax revenue, General Fund revenue growth that translates to strong growth in the Prop. 98 minimum funding guarantee, and no legislative suspension of the guarantee. 
• Leaves California’s arbitrary spending cap largely untouched. Other than modestly changing the relationship between two state reserves and the Gann Limit, Prop. 2 leaves in place the complex rules that structure California’s spending cap. This cap hinders state leaders’ ability to respond to the needs of Californians even as these needs have changed dramatically since the Gann Limit was created in 1979.

What Would Proposition 2 Mean for California?

This section explores the implications of several key provisions of Prop. 2, specifically:

• Raising the rainy day fund cap to from 10% to 20% of General Fund tax revenues,
• Setting aside more General Fund revenues during “boom” years,
• Expanding the types of state debt that may be paid down with set-aside revenues, including unemployment insurance loans and certain TK-14 education obligations, and
• Changing the relationship between two state reserves and the state spending cap (the Gann Limit).

This section also considers the implications of maintaining two current rainy day fund provisions that Prop. 2 would leave in place, specifically:

• Continuing to prohibit state leaders from reducing or suspending required debt payments during a budget emergency, and
• Maintaining the current definition of what qualifies as a budget emergency.

What Are the Implications of Raising the Rainy Day Fund (BSA) Cap to 20% of General Fund Tax Revenues?

Under Prop. 2, the maximum size of the rainy day fund would double, rising from 10% to 20% of General Fund tax revenues. With a higher cap, the rainy day fund would have the potential to grow substantially larger. This, in turn, would provide a larger “cushion” for the state budget, helping state leaders to better protect vital services when revenues drop during economic downturns and reducing the need for draconian spending cuts that harm Californians.

If the BSA balance were ever to reach the higher 20% cap, the annual General Fund revenues that would otherwise be deposited into the fund (“spillover” revenue) would instead be spent on infrastructure, as under current law. However, with a higher cap, the state would reach the BSA limit less frequently than is currently the case with a 10% cap. Consequently, over time there would be less spillover revenue available for infrastructure investments. On the other hand, the rainy day fund would likely hold a larger balance to help address a budget emergency.

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What Are the Implications of Setting Aside More Revenue in “Boom” Years?

Prop. 2 would require the state to set aside more revenue in years when capital gains revenues spike. This change would allow the state to build up the rainy day fund and pay down certain debts faster, reducing future General Fund cost pressures, while modestly curtailing General Fund revenue available for immediate spending needs.

If Prop 2’s “excess” capital gains provisions had been in place between 2010-11 and 2023-24, California would have had to set aside more General Fund revenue in six of those 14 years. This additional set-aside would have amounted to less than 1% or 2% of total General Fund revenue in each of those six years. Capital gains revenue is difficult to project. However, if a similar pattern held going forward, Prop. 2 could take hundreds of millions of dollars — or even more than $1 billion — in revenue “off the table” in some years. This would reduce resources available to address urgent needs that arise, but would also help to pay down additional state debt and further build reserves to address future emergencies.

Although “excess” capital gains revenue, by definition, is not a predictable and reliable revenue source and cannot be counted on to fund ongoing services, it could be reasonable to use it to temporarily meet critical needs. For example, the state could provide more funding for food banks in the wake of federal food assistance cuts, boost support for local governments to address homelessness, and pay child care providers before or at the time of service delivery (rather than after) — a change that would increase providers’ financial solvency.

In certain years, Prop. 2 would modestly reduce revenue that could otherwise be used to support vital services as communities across the state are reeling from deep federal cuts and mounting affordability pressures that are compounding long-standing unmet needs.

However, meaningfully addressing Californians’ needs requires significant and sustained new revenue — well beyond the relatively modest revenue that Prop. 2 would occasionally divert to reserves and debt payments. This underscores the need to reform California’s outdated tax base whether or not voters approve Prop. 2.

What Are the Implications of Expanding the Types of Debt That May Be Paid Down with Set-Aside Revenues?

The state Constitution requires a portion of General Fund revenues to be set aside each year for certain debt payments (unfunded pension and state retiree health liabilities). This requirement cannot be reduced or suspended even in a budget emergency — a provision that Prop. 2 would leave in place. In recent years, for example, roughly $1 billion to $2 billion in General Fund revenues each year remained “off the table” and were not available to support urgent spending needs.

Prop. 2 would broaden the allowable uses of set-aside revenues to include unemployment insurance (UI) debt. If policymakers were to use these debt-paydown funds to repay the principal on the state’s federal UI loans, then a cost currently borne by businesses would be shifted to the state.

Prop. 2 would also allow set-aside revenues to be used to pay down certain obligations related to TK-14 education and Medi-Cal that otherwise would be paid out of the General Fund. If policymakers were to use debt-paydown funds for these purposes, then General Fund revenue would be freed up for other purposes.

However, set-aside revenues are limited. If state leaders were to use more of these debt-paydown funds for the new purposes allowed by Prop. 2, then fewer (or no) funds would be available to reduce unfunded pension and state retiree health liabilities — costs that would eventually be borne by the General Fund.

What Are the Implications of Using Set-Aside Revenues to Repay Unemployment Insurance Loans?

Prop. 2 would allow state leaders to use set-aside revenues for “federal loans made to the Unemployment Fund.” California owes the federal government roughly $20 billion it borrowed to cover the cost of workers’ unemployment insurance (UI) benefits beginning during the COVID-19 pandemic, when unemployment spiked. Using debt-paydown funds to reduce the principal on California’s UI debt would shift a cost currently borne by businesses to the state and do nothing to fix California’s broken UI system.

Shifting a Cost Currently Borne by Businesses to the State

California’s state government is not required to repay the principal on federal UI loans. Instead, federal law requires businesses to repay the principal through automatic increases in their federal payroll taxes. This makes sense: California’s UI debt is the result of a broken system. For decades, state leaders have not required businesses to contribute enough to cover the true cost of the unemployment benefits their workers need.

Using set-aside revenues to repay the principal on California’s UI loans would shift a cost currently covered by businesses to the state. Moreover, this approach would reduce the amount of debt-paydown funds available for other purposes, such as reducing unfunded pension liabilities — costs that would eventually be borne by the General Fund. As a result, to the extent that state leaders were to use set-aside revenues to pay down UI debt, then more General Fund revenue would be needed to reduce other state debts, diverting dollars away from providing services to Californians.

Doing Nothing to Fix California’s Broken UI System

The UI system is chronically underfunded because California has failed to modernize the system’s financing to ensure that it generates sufficient revenue to cover the cost of the unemployment benefits workers need.

Consequently, federal loans are expected to become “a permanent feature” of the program, with significant implications for the state’s budget. California typically uses General Fund dollars to pay the interest on these loans, which could total around $1 billion annually in the coming years. Using state dollars to pay the interest on UI loans reduces resources that could otherwise be used to address Californians’ affordability challenges or other needs.

Using debt-paydown funds to reduce the principal on California’s UI debt could modestly reduce the state’s annual interest payments in the near term. However, until state leaders address the broken UI financing system, California is expected to remain locked in a perpetual cycle of debt, necessitating ongoing federal loans and putting constant pressure on the state’s General Fund to cover the annual interest owed.

What Are the Implications of Using Set-Aside Revenues to Repay Certain School and Community College (TK-14) Education Obligations?

Prop. 2 would give state leaders a new option to use set-aside revenues to repay certain TK-14 education obligations. Specifically, the measure would allow state leaders to use these funds to 1) cover Prop. 98 “settle up” payments, as needed, and 2) more quickly phase out an outstanding debt tied to an accounting maneuver that state leaders adopted in the 2023-24 budget to address an issue related to the Prop. 98 minimum funding guarantee. These new options mean that:

State Leaders Could Use Debt-Paydown Funds to Help Address Increases in Prop. 98 Funding Estimates

When state leaders enact a budget, they provide an estimate of the Prop. 98 minimum funding guarantee for that fiscal year. This initial estimate is updated in subsequent years to reflect changes in revenue estimates and other inputs. The updated inputs sometimes increase the Prop. 98 guarantee, which requires the state to provide additional funding through “settle-up” payments.

The state usually recognizes any increases to the Prop. 98 guarantee in subsequent years and provides the required settle-up payments from the state’s General Fund at that point. In some years, however, settle-up payments have been delayed, most recently for fiscal years 2024-25 and 2025-26, partly due to the state’s limited General Fund capacity to fund that growth.

Prop. 2 would allow set-aside revenues to be used to cover any current or future Prop. 98 settle-up obligations. This change would provide state leaders with an additional funding source for making these payments, which they could use at their discretion, potentially in combination with General Fund dollars. However, using debt-paydown funds for this purpose would compete with other allowable uses, such as prefunding state retiree health benefits.

In addition, using debt-paydown funds to make settle-up payments would not necessarily retire this obligation more quickly. Under current law, there is no required schedule for making settle-up payments, and Prop. 2 does not create one. If set-aside revenues were treated as the sole or primary source for settle-up payments, it could take longer to fully pay down these obligations because the amount of set-aside revenues may not align with the size of the obligation in a given year, especially when state revenues decline and the set-aside shrinks.

State Leaders Could Accelerate the State’s Recognition of $6.2 Billion in TK-14 Costs Incurred in 2022-23

In 2023, tax filing deadlines were extended due to winter storms, and state leaders overestimated the amount of tax revenue that would be received later in the year. As a result, the state provided $6.2 billion more to schools and community colleges than the Prop. 98 minimum funding guarantee actually required.

State leaders did not reduce the minimum guarantee to account for the lower revenues. Instead, they set up a schedule to recognize those dollars for accounting purposes in future budgets, starting in 2027-28 and ending in 2039-40. The annual cost is $500 million for the first 12 years, with a smaller amount in the 13th year.

Recognizing these costs will directly reduce General Fund revenues that would otherwise be available in those years for state funding priorities outside of the Prop. 98 guarantee. The sooner this $6.2 billion debt is recognized, the sooner the annual General Fund cost ends and those dollars become available for other purposes.

Prop. 2 would allow state leaders to use set-aside revenues to recognize this $6.2 billion debt, which would mitigate the General Fund impact as well as potentially clear the outstanding balance more quickly. However, using debt-paydown funds for this purpose would compete with other allowable uses, such as reducing state retiree pension liabilities.

What Are the Implications of Changing the Relationship Between Reserves and the State Spending Cap (Gann Limit)?

Prop. 2 would allow state policymakers to save more in strong revenue years to better protect vital public services during economic downturns. This is because deposits into two key reserves would no longer count as spending for the purpose of calculations required by California’s spending cap (the Gann Limit). Instead, these deposits would count toward the Gann Limit only when they are withdrawn.

This change would allow state leaders to build up reserves in years when revenues are strong and the state is close to reaching the spending cap, removing a key drawback of the Gann Limit. This change would also modestly increase “room” under the cap by up to a few billion dollars a year, potentially delaying how long it takes for the state to surpass the limit.

These changes are important. The Gann Limit is an arbitrary cap that hinders state leaders’ ability to respond to the needs of Californians, which have changed dramatically since late 1970s when the cap was established. Meeting the essential needs of residents and building up reserves to address future needs should not be hamstrung by an arbitrary spending cap approved by an earlier generation of voters. 

Prop. 2 would allow policymakers to keep the state under the Gann Limit by making deposits into two reserves — the BSA and the Projected Surplus Temporary Holding Account (“holding account”). Several factors, including which of these accounts were used for this purpose, would determine when the deposited funds could be withdrawn and how they could be spent. Specifically:

• For deposits into the holding account, state law currently requires the funds to be withdrawn within a year — a rule that could be changed by the Legislature.
  • If withdrawing funds from the holding account would cause the state to exceed the spending cap, then policymakers would lose flexibility over how the funds could be used (their use would be governed by the Gann Limit’s restrictive rules).
  • Otherwise, if withdrawing the funds would not cause the state to exceed the limit, policymakers would have full control over the funds.
• For deposits into the BSA, the portion that was constitutionally required to be deposited could not be withdrawn unless a budget emergency was operative. Any discretionary deposits, on the other hand, could be withdrawn at any time.
  • If withdrawing funds from the BSA would cause the state to exceed the spending limit, then policymakers would lose flexibility over how the funds could be used (their use would be governed by the Gann Limit’s restrictive rules).
  • Otherwise, if withdrawing the funds would not cause the state to exceed the limit, policymakers would have full control over the funds.

Although Prop. 2 would take a modest step toward loosening the constraints of the Gann Limit, the limit itself would remain in place and continue to artificially restrict policymakers’ ability to meet state residents’ needs and create an equitable California.

What Are the Implications of Continuing to Prohibit State Leaders from Reducing or Suspending Debt Payments During a Budget Emergency?

Prop. 2 would leave in place the rules that prevent state leaders from reducing or canceling required annual debt payments.¹⁷In contrast, under current law, required deposits into the rainy day fund can be reduced or suspended during a budget emergency — a flexibility that Prop. 2 would maintain. In other words, paying down debt would continue to be prioritized over using those funds to address a disaster or to meet Californians’ basic needs during tough budget years when state revenues are down.

Moreover, under Prop. 2, this prohibition on reducing or suspending debt payments would remain in place for an additional 10 years, through 2039-40, after which these payments would be optional. Under current law, debt payments are required through 2029-30, after which they become optional.

The current rules unreasonably constrain state leaders’ options when there is a budget deficit. As recently as 2025, for example, the state faced a $15 billion budget problem. However, state leaders could not pause the required debt payments, taking a potential budget-balancing tool off the table. As a result, additional budget “solutions,” like freezing Medi-Cal enrollment for certain immigrants and reducing payments to health care clinics, were enacted to close the budget gap, even as the debt payments went forward.

By failing to allow state leaders to reduce or suspend required debt payments, Prop. 2 misses an opportunity to create another budget-balancing tool that could help to close deficits without resorting to harmful cuts.

What Are the Implications of Maintaining the Current Definition of “Budget Emergency”?

Under Prop. 2, state leaders could continue to reduce or suspend a required deposit into the rainy day fund and/or withdraw funds to help address a budget emergency. Prop. 2 also maintains the current definition of a “budget emergency,” which reflects either 1) a disaster or extreme peril or 2) insufficient resources to meet a specified prior-year General Fund spending level.

The current definition of “budget emergency” leaves out federal funds. As such, it fails to recognize the impact of federal funding cuts on California’s ability to support vital public services. For example, H.R. 1, the 2025 federal budget reconciliation bill — the so-called “One Big Beautiful Bill Act” signed into law by President Trump — slashed federal funding for basic needs to help offset the cost of tax breaks for the wealthy and profitable corporations.

Millions of Californians will lose health care and food assistance due to H.R. 1. Yet, these massive federal cuts to vital public services do not count as a “budget emergency.” As a result, state leaders cannot tap the rainy day fund to help mitigate — if only temporarily — the impact of these federal funding losses and reduce the harm that H.R. 1 is inflicting on Californians.

By failing to broaden the definition of a “budget emergency” to include federal funding losses, Prop. 2 misses an opportunity to help state leaders reduce the harm of substantial federal cuts to vital public services.

The California Budget & Policy Center is a nonpartisan research and analysis nonprofit and does not endorse or oppose ballot measures. This analysis reflects the institutional position of the Budget Center, developed and reviewed by our policy leadership team.