Wyoming, Alaska have healthiest rainy day funds
NATIONWIDE | By TREVOR BACH, Contributor (AP) – The coronavirus pandemic has led to the greatest economic crisis in decades. U.S. gross domestic product plunged by a historic 33% in the second fiscal quarter, with more than 30 million Americans losing work on account of the virus. Even as recent months have seen some gains, analyses underscore a highly uneven recovery in which lower-wage workers and racial minorities continue to face daunting economic prospects.
The sudden recession, predictably, has also upended state finances, forcing governors and other officials to recalibrate spending and consider painful service cuts. Yet in at least one way, the economic fallout from COVID-19 could have been much worse: According to a new report from the Pew Charitable Trusts, state budgets were mostly healthy entering the pandemic: Ahead of the 2020 budget year, state balances totaled a record $118.8 billion, including $75.2 billion in rainy day funds.
It’s those rainy day accounts, says Justin Theal, an officer with The Pew Charitable Trusts’ state fiscal health project, that represent states’ “best line of defense for eliminating budget gaps without harming residents.” In a moment of sudden need – such as a tax revenue collapse triggered by a new global pandemic – the accounts are a critical safeguard, he notes.
At least 33 states, the report notes, actually had healthier rainy day accounts for fiscal year 2020 than they did for fiscal year 2007, the last budget year before the Great Recession. The new surpluses were largely a result of smart planning: “Since then,” Theal says, referring to the 2008 recession, “states have made tremendous progress designing careful policies.”
That’s particularly true for some of the states that entered the 2020 budget year with the highest rainy day reserves: Some Western states are heavily dependent on revenue from natural resources, a notoriously volatile revenue stream, but also implemented new measures to ensure they stashed away more money during the recent boom years. (As part of the same report, Pew also released updated data on states’ tax revenue volatility.)
Wyoming, whose rainy day fund ranked as the most buoyant, entered the 2020 fiscal year with an estimated $1.57 billion in its rainy day account, or nearly 353 days’ worth of its general fund expenditures. In fiscal year 2007, the Cowboy State held 59 days’ worth of expenditures. North Dakota, the state that ranked third, boosted its fiscal 2020 rainy day account to 110 days of savings, up from just 20 for fiscal 2019.
Here are the 10 states that entered fiscal 2020 with the healthiest estimated rainy day accounts:
3. North Dakota
4. West Virginia
5. New Mexico
Yet not all states were in good fiscal shape. Kansas, which only created its rainy day fund in 2016, had zero savings, while Illinois’ notoriously troubled state finances included less than one day of rainy day savings.
Here are the 10 states with the worst fiscal 2020 rainy day savings:
47. New Jersey
44. New York
Pew researchers also looked at how states have reacted to this year’s economic fallout, revealing a surprising chasm. Two states, Nevada and New Jersey, have completely drained their rainy day funds, and California has used nearly half of its fund. Yet most states, wary of a potentially long economic fallout, have been cautious – and Ohio has not tapped its fund at all.
“There is an incredible amount of uncertainty that states are facing these days,” says Pew’s Theal, who also points to this year’s other hugely expensive disasters, such as the Western wildfires and disastrous Atlantic hurricane season. “States are thinking about how and when to tap those rainy day funds … and they don’t know how long this recession is going to last.”