How Long Could Your State Operate Only on Its Fiscal Reserves?
If lawmakers in Arkansas wanted to tap the state's reserve funds, they really couldn't since the state is essentially tapped out. mnapoli / Shutterstock.com
A new Pew study examines the strength of the rainy-day funds of the 50 states.
In budget discussions, state officials are often hesitant to tap their fiscal reserves. Sometimes, tapping rainy-day funds is unavoidable. And during the Great Recession, plenty of state governments had to turn their reserves to make ends meet. Some states completely exhausted those funds.
How are those reserves looking these days?
A new Pew Charitable Trusts Fiscal 50 assessment finds mixed results with half of the states having “enough of a financial cushion at the end of fiscal year 2014 to cover at least 24 days of operating expenses, a partial rebound to the levels they had before the Great Recession.”
While Pew notes that while there’s “no one-size-fits-all rule on when, how, and how much to save,” building up reserve funds is one way to judge a state’s fiscal recovery—something that bond-rating agencies pay close attention to.
What if your state had to operate only on those reserve funds? How long would they last before exhausting those reserves?
According to Pew, only five states—Alaska, Wyoming, North Dakota, Nebraska and West Virginia—could operate for more than 100 days on their reserves. On the other end of the spectrum, the state governments of Arkansas, Illinois, Pennsylvania and New Jersey would last less than five days.
Here are two charts showing how the 50 states stack up:
Read Pew’s methodology below:
All data come from The Fiscal Survey of States reports, which are based on biannual surveys of state budget officers conducted by the National Governors Association and the National Association of State Budget Officers.
Total balances, also referred to as reserves or financial cushions in this analysis, are the sum of general fund ending balances plus rainy day fund balances. Some states report the sum of both funds. For states that do not, Pew calculated total balances by adding their rainy day fund balances to their general fund ending balances.
To convert each state’s reserve amount into days, Pew divided annual general fund expenses by 365 to represent daily operating costs. Pew then divided states’ total balances by their daily operating costs. Pew also calculated total balances as a percent of general fund spending. Reserves as a percent of spending is a standard metric that states use in setting caps on reserves or targeting reserve funding levels.
Total balances represent funds available to states to fill budget gaps, although there may be varied levels of restriction on their use. Rainy day funds are specifically dedicated to budget stabilization in a downturn and may have restrictions on the fiscal or economic conditions in which they can be used. Limits are also often set on how much states can deposit into rainy day accounts in a given year when seeking to replenish their reserves.