: State rainy day funds swell to new record in the wake of pandemic downturn

After a rocky 2020, U.S. states likely ended the 2021 fiscal year with more money in their rainy day funds than before the pandemic, according to an analysis published Thursday.

Twenty-eight states forecast growth in their rainy day fund balances — sometimes called budget stabilization funds — in 2021, increasing the overall national total to a new high of $82.2 billion, according to the report, a Pew Charitable Trusts analysis of data collected by the National Association of State Budget Officers during the spring. Most states have fiscal years that end June 30.

Since state budgets can vary so widely, aggregate dollar amounts don’t always offer much context. Of the 28 states that grew their balances, 21 also projected increases in the number of days of spending their rainy day funds will cover.

Nationally, states could run their operations on rainy day funds alone for an aggregate 29.4 days — an average that masks deep differences across the country. Wyoming could run its budget for nearly a year using only savings; Illinois a matter of hours.

States fared much better through the coronavirus downturn than many observers initially feared. Tax revenues have been stronger than expected, and unprecedented federal stimulus has helped buffer much budget stress.

See: U.S. state tax revenues end 2021 higher than 2019, report finds

Still, rainy day funds are critical. States use them “to manage budgetary uncertainty, including revenue forecasting errors, budget gaps during economic downturns, and other unforeseen emergencies, such as natural disasters,” the Pew analysis notes. Having a “financial cushion can soften the need for severe spending cuts or tax increases.”

Indeed, many states did spend their rainy day funds during the coronavirus downturn — mostly in 2020. Thirteen states’ fund balances decreased in fiscal 2020, Pew notes, with some big variances according to local economies. Those dependent on tourism and energy were particularly hard-hit.

“Nevada, for example, emptied its rainy day fund by the end of fiscal 2020, and New Jersey used almost all of its savings” the analysis says. “In fiscal 2021, Alaska estimated that it would reduce its balance by more than half.”

Read next: States rushed to slash taxes after a banner 2021. They may regret it.

What's your reaction?

In Love
Not Sure

You may also like

More in:News

Leave a reply

Your email address will not be published. Required fields are marked *

Next Article: