By the time Pennsylvania wrapped up another fiscal year on June 30, the state had generated a surplus of more than $800 million — the result, officials say, of strong corporate tax revenues and record-low unemployment.
Some of that money had to cover costs that the state budget hadn’t anticipated. But $317 million went into the state’s Rainy Day Fund, the Wolf administration announced on Tuesday, which is used to keep government operations funded in the event of an economic downturn.
“No one knows what the future holds for the American economy, and even with the best decision making there is always a risk we will have another recession,” Wolf, a Democrat, said at a Capitol press conference Tuesday. “We need to build up reserves when times are good, like they are now.”
- READ MORE: Pennsylvania’s Rainy Day Fund, explained.
Wolf authorized the deposit two weeks ago, when he signed a $34 billion balanced budget passed by the Republican-controlled General Assembly. It’s 25 percent higher than the $250 million deposit that lawmakers initially expected to make.
On Tuesday, officials applauded the “bipartisan leadership” that made the historic deposit possible.
But Wolf appeared at the Capitol on Tuesday with members of his own party — Lt. Gov John Fetterman and treasurer Joe Torsella, who said that a robust Rainy Day Fund protects taxpayers in two main ways.
First, state officials can use the savings to fund government services and payrolls in lean years. That’s what Pennsylvania did in the years after the Great Recession, when soaring unemployment and plummeting stock market prices delivered a serious blow to the state’s revenues, Torsella said.
A healthy savings account can also boost the state’s credit rating, Torsella said, helping it avoid high interest rates on loans and bonds — costs it passes on to its taxpayers.
The credit rating agency Standard and Poor’s downgraded Pennsylvania’s rating in 2017, when the General Assembly was in the midst of a months-long budget stalemate.
“This is good for every Pennsylvanian,” Torsella said Tuesday. “For the struggling school district or family that depends on medical assistant, this means we have made it less likely likely that we’ll cut their lifelines when the next economic downturn comes.”
This year’s deposit brings the total fund balance to $340 million. That’s the highest it’s been since before the Great Recession hit in 2008, when the fund had a balance $755 million.
In the years after the downturn, lawmakers withdrew all but $60,000 from the fund to patch up budget shortfalls, Wolf said Tuesday.
Last year, the Wolf administration shored up the account with a $22 million deposit. This year’s contribution is more than 14 times higher, thanks largely to higher than expected corporate tax revenues.
The current balance is enough to keep Pennsylvania powered for just a few days, officials said Tuesday. They said it provides an essential cushion against economic collapse, but conceded Pennsylvania has to make sustained investments in the fund in years to come.
Politicians and budget wonks say it’s hard to know when a Rainy Day account is fully funded. As Torsella said on Tuesday, “there’s no one-size fits all [balance].”
He said that best practices for emergency funds depend on a number of factors, including the stability of a state’s revenue sources.
Pennsylvania’s revenues are less volatile than other states that levy high taxes on natural resources, or that rely on mercurial industries like tourism, Torsella said.
“We still lag behind where we should be… but this is real, substantial progress we have made,” Torsella said.