At least 26 states had saved enough in their rainy day funds to cover a greater share of spending in fiscal 2018 than in fiscal 2007, the last full budget year before the downturn, according to a new analysis by the Pew Charitable Trusts.
For the past 10 years, most states were unable to match their pre-recession benchmarks for total balances due to sluggish recoveries in tax revenue and airtight budgets. But an unexpected tax revenue surge in the 2018 budget year—fueled in part by one-time money—resulted in the largest ending balances since fiscal 2015.
According to the report:
The additional resources enabled states to increase their rainy day funds—also called budget stabilization funds—for the eighth straight year, reaching a record 50-state total of $59.9 billion. With these savings alone, states could have run government operations for a median of 23.2 days, also a new high, compared with 16.6 days just before the recession.
Maryland finished fiscal 2018 with about 18 days worth of operating costs in its Revenue Stabilization Account (rainy day fund). Rainy day funds equaled $857 million, which amounts to about 5.0 percent of spending. Our state finished fiscal 2007 with 37 days’ worth of operating costs, with $1.4 billion, or 10.1 percent of spending – but that was a particularly strong year. From fiscal 2002 to fiscal 2005, the fund covered 17-18 days’ worth of operating costs and amounted to 4.6-5 percent of spending.
For reference, at the end of FY 19, the Revenue Stabilization Account balance totaled $882 million. For FY 20, the Department of Legislative Services (DLS) estimates a closing balance of $1.4 billion.
In Maryland, the Governor may transfer funds from the Revenue Stabilization Account to the general fund “as necessary to support the operation of State government on a temporary basis,” so long as the General Assembly approves the transfer, and it does not cause the account balance to drop below 5.0 percent of the estimated general fund revenues for that fiscal year.
Rather than focusing on withdrawal policies, Maryland has taken steps to address budgeting around economic volatility by saving more conservatively. In 2017, Governor Larry Hogan signed into law House Bill 503, which codifies an approach recommended by The Department of Budget and Management, the Comptroller, and the Department of Legislative Services in their November 2016 report, Report on Revenue Volatility and Approaches to Reduce Risk to the State Budget.
The law requires that the Revenue Stabilization Account or the newly established Fiscal Responsibility Fund receive a share of nonwithholding general funds above a cap that is based on the 10-year average nonwithholding revenues’ share of total general funds. Revenues from the Fiscal Responsibility Fund may only be appropriated in the second following fiscal year to PAYGO capital projects for public school construction, public school capital improvement projects, capital projects at public community colleges, and capital projects at four-year public institutions of higher education.