Rainy Day Funds -- November 28, 2020

Both links from the Pew Foundation.

The first link is from August 29, 2018, pre-Covid: "States make progress rebuilding rainy day funds."

A decade after the Great Recession began, at least half of the states could cover a bigger share of spending with rainy day funds than before the downturn. But most still had a thinner cushion against budget shortfalls in their total balances, which count rainy day reserves plus general fund dollars left over at the end of a budget year.

In fiscal year 2017, the 50-state total for rainy day funds increased for a seventh straight year to a record $54.7 billion, enough to run government operations for a median of 20.5 days, also a new high. Early estimates showed savings at near-peak levels in fiscal 2018, which ended in June for most states. The results will probably rise once missing and final data are counted in a year in which higher-than-expected tax revenue led a number of states to increase savings beyond their earlier estimates.

Even with rainy day funds at today’s peak levels, though, most states’ total balances could cover a smaller share of government spending than they could have heading into the 2007-09 recession. 

Now, fast forward to 2020, also from Pew, dated October 14, 2020, data points (numbers rounded):

• 2020: states, pre-Covid had a record $120 billion in total balances, including $75 billion in rainy day funds
• rainy day funds (budget stabilization funds): had grown for the ninth consecutive year;
• on rainy day funds alone, state governments could run for a median of 27 days, a record high
• prior to the Great Recession, they could operate for about 17 days
• individual states
• Ohio: has not dipped into their funds; waiting to see how things pan out
• have completely exhausted their rainy day funds
• Nevada
• New Jersey
• will reduce its rainy day fund by 60%; New Mexico
• will cut their rainy day fund by half: Alaska, Rhode Island, California
• Illinois: did not have a rainy day fund to begin with
• ten states have already used rainy day funds to close budget gaps in 2020: AK, DE, MD, MI, MS, NV, NJ, NM, OK, RI
• and, finally, this comment from the authors of the study -- 
• “The withdrawals in Nevada and New Jersey marked a sharp reversal in two states that had made recent progress in replenishing their rainy day funds after emptying them during the previous downturn,” the authors of the report note. 
• “In fiscal 2019, New Jersey made its first deposit in a decade, and Nevada surpassed its pre-Great Recession savings level for the first time.”

It's going to be interesting to see the 2020 data when it comes out next year (2021). A number of states, no doubt, are counting on bailout by the federal government. Some states are doing much better than I would have expected.