California
California’s Rainy Day Fund and Other Budget Reserves Overview
key takeaway
California’s state budget reserves, including the “rainy day fund” and other reserve accounts, serve as a financial safety net for services like education, health care, and child care during economic downturns. The rules for depositing and withdrawing funds are complex, and policymakers should consider reforms, such as excluding reserve deposits from the Gann Limit spending cap, to strengthen the state budget’s resilience during a recession.
Introduction
California has several state budget reserves. These reserves help to maintain essential public services — like education, health care, and child care — when revenues fall short, such as during recessions. Reserves aren’t for everyday spending, but rather a financial safety net for the state.
This report describes California’s state budget reserves, explains how funds can be accessed and used, and discusses proposals to reshape these reserves that have been floated in recent years. For more information about California’s reserve accounts, see the Budget Center’s companion resources, including this video — California’s State Budget Reserves Explained — and this fact sheet — 5 Key Questions About California’s State Budget Reserves.
state budget Reserves in a nutshell
- The Budget Stabilization Account (BSA), or “rainy day fund,” holds revenues to support any program funded through the state budget.
- The Public School System Stabilization Account (PSSSA), or schools reserve, periodically holds revenues to support K-12 schools and community colleges.
- The Safety Net Reserve periodically holds revenues intended to support the CalWORKs and Medi-Cal programs.
- The Special Fund for Economic Uncertainties (SFEU) holds revenues to cover unexpected state budget costs during a fiscal year.
- The Projected Surplus Temporary Holding Account can be used to temporarily set aside some anticipated surplus revenues and avoid spending funds that may not materialize.
Budget Stabilization Account (BSA): California’s Largest Reserve
The BSA is California’s largest state budget reserve. Deposits into and withdrawals from this “rainy day fund” are based on complex rules that were added to the state Constitution by Proposition 2 of 2014. Key rules include the following:
An annual deposit is required. Prop. 2 requires that 1.5% of General Fund revenues be set aside every year. Until 2029-30 half of these revenues must be deposited into the BSA and the other half must be used to pay down certain state debts. Beginning in 2030-31, the entire amount must be deposited into the BSA, although state leaders will have the option of redirecting up to one-half of each year’s deposit to pay down debts.
In some years, the state must set aside additional General Fund revenues. This occurs in years when estimated General Fund revenues that come from personal income taxes on capital gains exceed 8% of total General Fund proceeds of taxes. The share of these “excess” capital gains revenues that is not owed to K-12 schools and community colleges under the state’s Prop. 98 funding guarantee must be used for BSA deposits and debt repayments, following the same requirements as the mandatory 1.5% deposit. Since Prop. 2 was enacted, capital gains tax revenues have exceeded the 8% threshold in most years, but could fall below the threshold in years when there are downturns in the stock market.
State leaders may also make discretionary deposits. In addition to the mandatory annual deposits required by Prop. 2, policymakers have the option of saving additional, discretionary revenue in the BSA.
The required annual deposit may be reduced or suspended in the event of a “budget emergency. If the governor declares a budget emergency, the state may reduce or suspend the required BSA deposit with a majority vote of each house of the Legislature. Prop. 2 defines a budget emergency as a situation where:
- Conditions of disaster or extreme peril are present; or
- The state has insufficient resources to maintain General Fund expenditures at the highest level of spending in the three most recent fiscal years, adjusted for state population growth and the change in the cost of living.
BSA funds may be withdrawn in the event of a budget emergency, but the entire balance cannot be removed at once. If the governor declares a budget emergency and the Legislature agrees with a majority vote of each house, funds may be taken out of the BSA. However, the entire balance cannot be removed immediately. Only the amount needed to address the budget emergency may be withdrawn, subject to the additional limitation that a withdrawal may not exceed 50% of the BSA balance in the first year of a budget emergency. In the second consecutive year of a budget emergency, all of the funds remaining in the BSA may be withdrawn.
Funds that are taken out of the BSA may go toward any purpose determined by the Legislature. For example, these dollars could be used for health care services, subsidized child care for working families, cash assistance for people with low incomes, K-12 schools, and any number of other public services and systems.
Funds in the BSA cannot exceed 10% of General Fund tax revenues. Prop. 2 caps the balance of the BSA. Once the balance — excluding any discretionary deposits — reaches 10% of General Fund tax revenues, any revenue that would otherwise have been required to go into the reserve must be instead spent on infrastructure, which includes housing. Prior to 2026, the BSA balance reached the cap twice — in 2022-23 and 2023-24 — but then dropped below the cap as state leaders withdrew funds in some years to address budget shortfalls.
Prop. 2 of 2014 also established the PSSSA, the state’s budget reserve for California’s K-12 schools and community colleges. Prop. 2 does not require an annual deposit into this reserve. Moreover, Prop. 2 restricts the circumstances under which transfers to the PSSSA can occur. For a PSSSA deposit to be required, all of the following conditions must be met:
- General Fund revenues that come from personal income taxes on capital gains are relatively strong;
- Growth in General Fund revenues leads to relatively strong growth in the state’s annual minimum funding guarantee for K-12 schools and community colleges; and
- The Legislature does not suspend the annual K-14 education minimum funding guarantee.
Even under these restricted circumstances, Prop. 2 limits the size of the deposit to the schools reserve when such a deposit is required.
Deposits to the PSSSA may be reduced or suspended in the event of a budget emergency under the same rules that govern reductions or suspensions of deposits to the BSA (see the prior section of this report). Similarly, funds may be withdrawn from the schools reserve if the governor declares a budget emergency and the Legislature agrees with a majority vote of each house.
In contrast to the rules governing the withdrawal of funds from the BSA, all of the PSSSA funds may be withdrawn in one year. Moreover, funds withdrawn from the PSSSA must be used to support K-12 schools and community colleges.
Safety Net Reserve: Funds to Protect the Medi-Cal and CalWORKs Programs
The Safety Net Reserve was created in 2018 to set aside funds to help cover the costs of two programs that often see increases in enrollment during recessions: Medi-Cal and California Work Opportunity and Responsibility to Kids (CalWORKs). Both of these programs serve Californians with low incomes — with Medi-Cal delivering health coverage, and CalWORKs providing modest cash assistance to families with children. During economic downturns, more people become unemployed and temporarily rely on these programs to cover their basic needs, increasing state costs.
The Safety Net Reserve is not a constitutional reserve, so there are no binding requirements governing deposits or withdrawals. This means that funds can be transferred into and withdrawn from the reserve at the discretion of the Legislature. In fact, state policymakers voluntarily deposited $900 million in the Safety Net Reserve before draining all of those funds in 2024 to help address a $55 billion state budget problem.
Moreover, while state law specifies that the funds are to be used only for Medi-Cal and CalWORKs costs during economic downturns, state policymakers could decide to modify this language and use the funds for other purposes. However, in establishing this reserve, policymakers clearly recognized the need to protect critical services for Californians with low incomes from budget cuts — cuts that would undermine Medi-Cal and CalWORKs at the very time that these programs are needed most.
Special Fund for Economic Uncertainties (SFEU): The Discretionary Reserve
The SFEU is the state’s discretionary General Fund budget reserve, meaning policymakers have a great deal of latitude in spending the funds in the reserve. The amount of money in the SFEU is equal to the difference between General Fund resources and General Fund spending in a given fiscal year.
The SFEU acts as a buffer against unanticipated revenue shortfalls or spending increases. Due to California’s constitutional balanced-budget requirement, which requires the state to enact a budget in which spending does not exceed available resources, the projected SFEU balance cannot be less than zero at the time the annual budget is adopted. However, if state revenues come in lower than projected and/or spending unexpectedly rises, the SFEU balance will decline, and may become negative as spending begins to exceed revenues.
The Legislature can appropriate funds from the SFEU at any time and for any purpose. Additionally, in the event of a disaster, the governor can allocate funds from the SFEU without the prior approval of the Legislature. Specifically, when the governor declares a state of emergency, the Department of Finance (DOF) can transfer funds from the SFEU into a subaccount called the Disaster Response-Emergency Operations Account (DREOA). These funds are allocated to state agencies for costs that are “immediate and necessary to deal with an ongoing or emerging crisis.”
Projected Surplus Temporary Holding Account: A Place to Set Aside Anticipated Surplus Revenues
State leaders created the Projected Surplus Temporary Holding Account in 2024. This account gives policymakers a place to temporarily set aside anticipated surplus revenues, “ensuring that funds are only spent once they are realized.”
State leaders have broad authority to determine whether or how to use this holding account. The only requirement is that revenues that go into the account cannot remain there for longer than one year. If state revenues materialize as projected, the revenues in the account may be spent for any purpose or transferred back to the General Fund for future use.
This holding account is a “pilot budgeting project” that expires at the end of 2030, although state leaders could approve an extension as well as potentially modify the rules.
What’s Next for California’s State Budget Reserves?
The rules that govern California’s budget reserves can be amended by voters or state policymakers. Changing the reserve rules established by Prop. 2 (2014) would require voters to approve a constitutional amendment. Other reserve rules can be changed by state policymakers without the need for voter approval.
In recent years, state policymakers and others have advanced proposals to revise California’s reserve policies, although none have moved beyond the conceptual stage. Common proposals for changing state reserve policies include the following:
Proposals to increase the share of state General Fund revenue deposited into the Budget Stabilization Account (BSA), or rainy day fund.
Proposals to allow the balance of the BSA to grow beyond 10% of annual state General Fund revenue.
Proposals to exclude reserve deposits from California’s spending cap, or “Gann Limit.”
Changes to the rainy day fund or the Gann Limit would require amending the state Constitution. This means that voters would have the last word on the most significant proposals to modify California’s state budget reserves.
The race for California governor in November will be a battle between a Democrat promising to cement the state’s status as a stronghold of liberal policies and a Republican pledging to dramatically reverse course in America’s most populous state.
Republican Steve Hilton, a former Fox News commentator backed by President Donald Trump, has won enough votes to advance to the general election, Associated Press determined on Tuesday. He will face Democrat Xavier Becerra, a former state attorney general and health secretary under President Joe Biden.
The winner will succeed Democratic Governor Gavin Newsom to lead the state that is home to roughly 39 million people, Hollywood, a booming tech industry and a vast farming region that helps feed the nation. By itself, California represents one of the largest economies in the world at US$4.25 trillion.
Newsom, one of his party’s top foils against the Trump administration, was widely seen as eyeing a run for president himself in 2028.
The next governor will have to take on stubborn issues including a high cost of living, housing shortages and homelessness.
Hilton is banking his campaign on voters being frustrated enough to do something they have not done in two decades: elect a Republican to statewide office. The last time that happened was when Governor Arnold Schwarzenegger won a second term in 2006. Hilton has campaigned as an outsider who would bring change after more than 15 years of one-party rule.
By Levi Sumagaysay, CalMatters
This story was originally published by CalMatters. Sign up for their newsletters.
For the first time since California insurance commissioner became an elected position, two Democrats will vie for the job in November.
The top two vote-getters in the June primary were former San Francisco Board of Supervisors member Jane Kim and state Sen. Ben Allen, who received about 27% and 20% of the vote, respectively. One of them will succeed Ricardo Lara, the former Democratic lawmaker who has served two terms as insurance commissioner. Lara has presided over the Insurance Department in the past eight years, during which the state saw its deadliest and most devastating fires.
Kim or Allen will be taking on complicated, enormous challenges that have implications for local communities, people’s ability to buy homes and start businesses, and the state’s economy.
In the past few years, insurance companies stopped writing new policies or renewing old ones, especially in high-risk areas, citing increasing wildfire risk from climate change and inflation that followed the COVID-19 pandemic. This caused homeowners to turn to the last-resort FAIR Plan, which is mandated by law to provide fire insurance. The plan, run by an alliance of insurers, has grown to more than 684,000 policies in force as of March, an increase of 152% since September 2022. It has warned about its ability to keep paying claims after major disasters.
Proposition 103, a law approved by voters in 1988, means that among many other things, the elected commissioner has the power to approve rate increases. It has kept the state’s rates from rising too much over the years — Californians’ homeowners insurance premiums have hovered around the middle of the pack nationwide — but that could change. Last year, the commissioner put in place regulations that include new factors insurers can use when setting their premiums, such as catastrophe modeling and reinsurance costs. Some companies have applied for and received approval to raise their rates, so they’re starting to write policies again.
Keeping insurance available but affordable will be the most pressing issue for either Kim or Allen, whose responsibilities will also include regulating auto, pet and some aspects of health insurance, plus workers’ compensation.
Another problem that will need plenty of attention: making sure insurance companies pay their claims in a timely manner that helps communities to rebuild. The L.A.-area fires shed a light on insurer practices that delay and deny claims, as well as underinsurance and the lack of standards for smoke damage, which have held up recovery. Pending legislation — such as those authored by Allen, whose district was hit by the fires last year — and lawsuits will address some of those issues. Well-organized fire survivors who called for Lara’s resignation over his department’s response to their concerns will surely keep up the pressure on his successor.
Here’s a look at each candidate’s record and how she or he would approach the job, based on their interviews with CalMatters and what they have said publicly, including at candidate forums.
Jane Kim
Kim’s proposal to create “natural disaster insurance for all,” inspired by a program in New Zealand, has gotten a lot of attention. She plans to fund such a system with a portion of policyholder premiums that insurance companies would collect and divert to the state. The state would then guarantee fire and flood coverage, while insurance companies would continue to cover other risks.
Naysayers, including consumer advocates, wonder why she hasn’t released any specifics about how much capital such a fund would require. Kim told CalMatters that it would need to be studied, but that at its core her proposal would generate revenue.
Opponents of her proposal also say it’s a bad idea to shift catastrophic burden onto the state, pointing to what they say is the failure of splitting off earthquake insurance from homeowner insurance — most California homeowners now have no insurance coverage.
“We (taxpayers) already are on the hook,” Kim said. “When insurers and utilities refuse to pay, they just pass it on to us anyway. Sharing the risk is important.”
Kim also told CalMatters that an idea Merritt Farren, a Republican candidate for commissioner, proposed — that the state create a reinsurance authority to encourage insurers to write policies in the state — “may turn out to be a more efficient model.”
Among Kim’s shorter-term priorities if she wins:
- Create public dashboards to show how insurance companies are spending policyholder premiums, and that show their record on claims.
- Expand eligibility for a program that provides low-cost insurance to drivers who make less than $38,000 a year.
- Tie a company’s ability to sell auto insurance in the state to its willingness to write homeowner policies.
- Make the FAIR Plan more transparent by requiring that its list of board members be public, and that its board meetings be public.
- Freeze rates when policyholders file claims.
The former San Francisco elected official, an attorney, touts among her accomplishments free community college for the city’s residents; the first $15 minimum wage ordinance in the state; and a tenant-protection ordinance to avoid unjust evictions. She worked as the California director for Sen. Bernie Sanders’ 2020 U.S. presidential campaign and most recently as California Director for the Working Families Party.
Kim has a long list of endorsers, including many unions such as SEIU California. Besides Sanders, another U.S. lawmaker, Rep. Ro Khanna of Silicon Valley, has also endorsed her.
Ben Allen
The state senator, who will be termed out of the Legislature, wants to bring together the state, insurers, builders, local governments and firefighters to work on risk-reduction strategies.
“I think that’s ultimately going to be the way that we get ourselves out of this mess,” he told CalMatters.
What he calls a comprehensive approach includes thinking about where people live and build: “We shouldn’t be building new construction that is irresponsible in high-risk areas. We should be looking for ways to carefully and sensitively encourage people to pull back from high-risk areas.”
If he wins, Allen’s other plans include:
- Create a consumer advocate position within the insurance department, and increase staff to handle customer service.
- Require insurers to explain claim denials and provide real-time reports of delays and outstanding claims after a disaster.
- Increase oversight of the FAIR Plan and make sure it complies with commissioner orders.
- Ban the insurance commissioner and staff from working for the industry immediately after they leave the department.
Allen has played up his experience as a legislator, including writing and passing bills related to holding insurance companies accountable. For example, a law he wrote now requires insurers to pay 60% of policyholders’ contents coverage without a detailed inventory, and gives consumers more time to provide that inventory. He also touts writing Proposition 4, the bond measure approved by the state’s voters in 2024 “for safe drinking water, wildfire prevention and protecting communities and natural lands from climate risks.”
Other pending bills authored by him include one that would require insurers to give homeowners 90 days notice before they intend not to renew their policies, along with a clear explanation. Another would penalize insurance companies that fail to correct their practices after the insurance department finds that they have violated laws and regulations.
Allen also has many endorsements, including the two leaders of the state Legislature, Senate Pro Tem Monique Limon and Assembly Speaker Robert Rivas. U.S. Sens. Adam Schiff and Alex Padilla, both from California, unions and the Consumer Federation of California also endorse him.
This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.
FRESNO, Calif. (KFSN) — The homeless population in Fresno and Madera counties saw a modest increase in the latest Point-in-Time count, even as overall numbers declined across California and the nation.
The Fresno-Madera Continuum of Care reported Monday that its 2025 Point-in-Time homelessness count showed a 9.2% increase compared with 2023. A total of 4,905 people were reported homeless on the night of the count.
Among those counted, 29% cited a substance use disorder and 31% reported a serious mental illness. Five percent were younger than 18.
Officials also reported more than 4,000 beds available year-round for people experiencing homelessness across the two counties, with 84% occupied on the night of the count.
The results have been highly anticipated, though county officials cautioned that the figures may not reflect current conditions.
They attributed that concern to delays from the U.S. Department of Housing and Urban Development, which took more than a year to validate the submission.
According to the department’s 2025 Annual Homelessness Assessment Report, California was among five states to report a decrease in homelessness last year, with a 2.8% drop – the state’s first decline since 2016. Nationwide, homelessness fell 3.3%.
The continuum of care also released initial, unvalidated data from its most recent count, which used a new survey-based method rather than relying solely on visual tallies.
“Not only will we have a count of people that are experiencing homelessness, we’re also going to get that information from them about how they got here, what happened that caused this situation in their life,” Laura said.
The updated approach included trained volunteers asking questions about demographics, disabilities and causes of homelessness.
Preliminary figures from the new method show 1,619 people experiencing unsheltered homelessness and 1,635 reported as sheltered.
Officials noted that unsheltered individuals who declined to complete the survey will not be included in the 2026 count.
County officials said the new system is intended to provide more detailed insights into homelessness in the region, while future validated counts will offer a clearer picture of trends over time.
For news updates, follow Vincent Camarillo on Instagram.
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