Rainy Day Fund Should Help — Not Hinder — Economic Recovery

In an on-going series of posts this week, we have discussed Washington’s Budget Stabilization Account or “Rainy Day Fund” (RDF).  The rainy day fund was created in 2007 to secure our essential public structures during recessions, natural disasters, and other state emergencies.  We lay out potential reforms in our latest policy brief, Strengthening Washington’s Rainy Day Fund.

In addition to other reform proposals, the rainy day fund should not hinder recovery efforts. This can be accomplished by modifying deposit requirements.

Under current law, policymakers must deposit funds into the rainy day fund every year regardless of economic conditions. As a result, lawmakers could be required to make economically -damaging deposits to the RDF in the midst of (or immediately following) deep recessions, when all available resources are needed to maintain essential public services.

A more sensible approach would be to suspend contributions to the rainy day fund during economic downturns and require that they resume when conditions improve. 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.

Accordingly, policymakers and the public (via a Constitutional referendum) should eliminate the automatic deposit requirement. Replacing the automatic deposit requirement with deposits based on an economic trigger (or triggers) would allow the RDF to grow during prosperous times while preventing economically damaging deposits when the economy is weak.

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.