A Stronger Rainy Day Fund
A more robust rainy day fund that is flexible will be crucial as part of our response to any future fiscal challenges.
Washington’s Budget Stabilization Account or “Rainy Day Fund” (RDF) was created to secure our essential public structures during recessions, natural disasters, and other state emergencies. Due to several design flaws, our current state RDF does not adequately support education, health care, and other important public priorities in times of need. Read about the inadequacies of Washington’s rainy day fund here.
This year, Washingtonians have an opportunity to make sensible, long-term reforms that would make our state rainy day fund more adequate and accessible during future state crises.
These reforms should include:
- Improving the adequacy of the RDF by increasing annual deposits: To increase the adequacy of the fund, the deposit rate should be increased from one percent of general fund tax revenues to 3.5 percent of general fund revenues in order to act as an effective backstop during deep recessions.
- Fostering improved access and accountability by eliminating the supermajority requirement and applying strict limitations: To ensure the funds are accessible during emergencies – but used responsibly – Washingtonians should: 1) repeal the onerous supermajority (three-fifths legislative vote) requirement; and 2) stipulate that RDF funds are only to be used when tax revenues are projected to fall short of the amount needed to maintain current levels of services.
- Ensuring the rainy day fund does not hinder recovery efforts by modifying deposit requirements: Suspending contributions to the RDF during economic downturns and requiring that they resume when conditions improve would prevent economically-damaging deposits to the RDF in the midst of deep recessions. This could be accomplished by establishing an economic “trigger” – such as when total personal income is projected to grow by more than 11 percent in the coming fiscal year.
It is important to note that Washington’s inadequate revenue system prevents our state from having an ideal RDF – one that is replenished only during good economic times when the state faces budget surpluses. Even so, by strengthening the RDF, policymakers – and voters via a Constitutional referendum – have an opportunity to stabilize funding for our vital public structures in the long run. The reforms listed above would greatly improve the adequacy, accessibility, and accountability of this important tool. Without these reforms, our limited RDF could prove to be inadequate and ineffective during future recessions.
Read our entire brief Strengthening Washington’s Rainy Day Fund.