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Bluer skies for rainy days fund.

State lawmakers took advantage of robust revenue growth in the late 1990s to shore up their rainy day funds. And it paid off. When the national economy declined in 2001, rainy day accounts helped states close sizeable budget gaps.

After several very difficult budget years, most states are experiencing strong revenue growth. Lawmakers in the 44 states that have them are now able to replenish their rainy day funds. In 20 states, rainy day fund balances represent at least 5 percent of general fund appropriations. With more than half the states making new deposits, these balances rose 23 percent nationally at the end of FY 2006 compared to the previous year and accounted for almost half of general fund year-end balances.

Year-end balances--unobligated ending balances plus rainy day fund balances--are considered one of the best indicators of state fiscal health. At least in the near term, they demonstrate strength in state fiscal conditions. But many legislative fiscal directors are concerned that state spending will outpace revenue growth over the longer term, leading to structural deficits beginning as early as FY 2008. The current healthy fiscal situation might delay that development, but likely not avert it.


It's insufficient revenue growth to cover ongoing expenditure growth. To a limited extent, rainy day funds and other reserves can be used to fill part of the gap, but to really eliminate a structural deficit, states must cut spending or raise revenues.

Current year-end balances show strong state fiscal conditions--at
least in the near term.

 Rainy Day Funds Unobligated Balances

FY 2003 $9.6 $7.5
FY 2004 $18.3 $15.7
FY 2005 $23.2 $23.3
FY 2006 $28.6 $29.4
FY 2007
Projected $24.6 $16.6

Note: Numbers are rounded.
Source: NCSL

Note: Table made from bar graph.
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Publication:State Legislatures
Geographic Code:1USA
Date:Dec 1, 2006
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