Improve the rainy day fund by increasing annual deposits

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. The Great Recession has shown our current rainy day fund to be inadequate in the face of a severe recession. In conjunction with the other reforms included in our latest policy brief, Strengthening Washington’s Rainy Day Fund increasing the annual deposit rate to 3.5 percent of general state revenues would create a more robust and adequate RDF for our state.

One significant problem with our current rainy day fund is that the annual contribution rate — which amounts to 1 percent of general fund revenues — does not allow Washington to accumulate enough savings between recessions. Though Washington’s RDF was established in 2007, the graph below shows that it would have been woefully ineffective in the current recession — even if it had been enacted 12 years earlier.

As the graph shows, under the current, one percent deposit rate, Washington’s rainy day fund would have accumulated savings of $488 million, less than 2 percent of the Near General Fund budget. (An ideal RDF should achieve balances of about 15 percent of state operating budgets.)

However, under the higher 3.5 percent annual deposit rate proposed in our latest policy brief Washington would have amassed savings of about $1.7 billion prior to the Great Recession. (The chart assumes other changes proposed in our analysis in addition to the higher deposit rate.)

Read more about the rainy day fund and other reform components, in Framework for Prosperity, which details our vision to ensure long-term state growth.