NC can take a lesson from Wyoming

A new article from Governing, touches on rainy day funds and when it is time to use the funds set aside by state’s.

North Carolina put aside millions into its rainy day fund, to offset an unforeseen natural disaster or another recession.  Now the question that must be raised is…..When do you spend the money?

Wyoming’s state revenues have declined since they are directly tied to the oil and natural gas industry.  Lawmakers cut state funding, and are looking to next year’s budget to see if any additional programs can be eliminated to save precious tax dollars.

While some legislators are tempted to simply plug any holes with money from the state’s $1.8 billion rainy day fund, others want to use this opportunity to strengthen the state’s rainy day fund policy. Namely, they want to put in writing what the policy goals for the fund are and when it is appropriate to withdraw money.

“We’d like to be able to say ahead of time, what are the ground rules that would trigger using the rainy day fund,” said Wyoming state Rep. Mike Madden, who co-chairs the Revenue Committee. In consultation with the Pew Charitable Trusts, the committee is developing policy to be voted on in next year’s session. As it currently stands, said Madden, “we do these rules by the seat of our pants — meaning it depends on how bad things are.”

Many states have laws on the books that restrict the use of rainy day funds, or mandate how much should be contributed.  While partisan politics usually clash when deciding how much to save and when to spend it, that is exactly what Wyoming lawmakers are trying to decide during the interim.

In Wyoming, committee members are discussing things like how to define a downturn in the state’s revenues, whether or not withdraw from other state investment funds before turning to the rainy day fund and creating a deposit rule, said state Rep. Madden. Lawmakers also need to decide how much financial coverage they’d like from their savings accounts during a downturn. A one-year buffer? More? States with more volatile revenues from year-to-year, like Wyoming, will need to set aside more money per year of coverage. “It’s like an insurance policy,” said Pew’s Brenna Erford, who reported to Wyoming’s revenue committee on the topic earlier this month. “For a higher savings target [down the road], you need to pay a higher premium.”

To read more about this, check out Governing’s article, “When is it Rainy Enough to Tap the Rainy Day Fund?”

Sarah Curry

Sarah Curry is Director of Fiscal Policy Studies at the John Locke Foundation.

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