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Only 15 tapped rainy day funds in fiscal 2020 and reserves remained near record levels. Now, better-than-expected tax revenues and federal aid could limit the need for further withdrawals.
Rainy day fund balances across states remained near all-time highs in the previous fiscal year, despite the shock of the coronavirus pandemic.
That’s according to new research findings that The Pew Charitable Trusts published Monday. Pew’s analysis says just 15 states tapped their rainy day fund savings accounts during fiscal 2020, which ended in most states last June 30. Those withdrawals totaled $12.4 billion.
Total state rainy day fund balances for fiscal 2020 were around $71.6 billion, an amount that Pew said was second only to a pre-pandemic record of $78.7 billion.
Rainy day funds, also called budget stabilization accounts, provide state governments with a financial buffer to cover unexpected costs or revenue declines. In the years following the 2007 to 2009 recession, states amassed billions in savings, in anticipation of future downturns.
Pew’s findings about rainy day funds are an example of how state budgets have fared better than many experts and state officials initially feared during the early days of the pandemic.
The researchers say it’s still unclear how many states will pull from their savings during the current fiscal year, which has unfolded entirely during the public health crisis.
National Association of State Budget Officers data indicated that 11 states were planning to see declines in their rainy day fund balances.
But, in many cases, tax revenues have beaten earlier expectations. Meanwhile, the federal government has pumped trillions of relief dollars into the economy and lawmakers this year approved a $350 billion direct aid program for state and local governments.
The economy is also now recovering as vaccination rates climb and case counts fall.
Pew notes that, as of February this year, tax collections in 29 states had grown enough to balance out pandemic-era losses. But in 18 states, especially those that depend on tourism and oil and gas production, revenues were still lagging where they were before the crisis.
New Jersey and Nevada were the only states to empty their rainy day funds in fiscal 2020, according to the Pew report. But the report points out that Nevada’s governor has a plan to rebuild the state’s savings and New Jersey expects to sock away $1.4 billion in this budget cycle.
In the other 13 states that dipped into the funds, withdrawals ranged from 4% of savings in Texas and Georgia to 71% in Oklahoma and 84% in Hawaii, the report says. California drew down the largest dollar sum—$7.2 billion. But, there too, the governor is seeking to refill the fund.
One way to assess rainy day fund balances is to look at the number of days worth of state operating costs the savings can cover. Across states, the median number of days at the start of the 2021 fiscal year was 28.5, according to Pew.
The states with some of the beefiest 2020 balances have economies tied closely to gas and oil production, a sector with a history of boom and bust cycles that can upset tax revenues. These states include: Wyoming (354 days), North Dakota (111 days) and Alaska (111 days).
Pew’s research shows that six states had less than a week’s worth of operating costs in their rainy day reserves at the close of the last fiscal year: Kansas (4 days), Pennsylvania (3.6 days), Hawaii (2.7 days), Illinois (less than a day) and Nevada and New Jersey (zero days).
The Treasury Department, in guidance released last week, included rainy day fund deposits on a list of ineligible uses for the $350 billion pool of direct aid that states and localities will receive under the federal pandemic relief law known as the American Rescue Plan.
Pew’s full analysis can be found here.
Bill Lucia is a senior editor for Route Fifty and is based in Olympia, Washington.