States entered the Great Recession of 2007-2009 with their biggest budget reserves in history, but those reserves filled only a modest share of the huge state budget gaps that the recession generated, in part because many states’ “rainy day” funds are poorly designed. Now is the time to fix those flaws, as our new report explains.
Unlike actually replenishing the funds — which states shouldn’t do until their revenues rise well above pre-recession levels and states have restored the program cuts that they made during the recession — these design improvements cost nothing. And they will help states weather the next economic storm with fewer cuts in services and tax increases. The improvements include:
Several states have already improved their rainy day funds since 2009. Georgia, Oklahoma, South Carolina and Virginia have raised the cap on the size of their funds, while Hawaii, Massachusetts, and Washington have made it easier to replenish their funds. Other states should get on the bandwagon.