Pennsylvania’s rainy day fund, explained: Why a $250 million deposit is getting so much attention

It's like rain on budget day. (Photo by Sarah Anne Hughes)

As part of this year’s budget, lawmakers are getting ready to do something unusual: make a deposit into Pennsylvania’s rainy day fund.

On Tuesday, the Republican-controlled state House passed a budget spending bill that puts $250 million into an emergency savings account. The move was backed by Democratic Gov. Tom Wolf, who consistently said any surplus should be saved — not spent.

“Once we faced a $3 billion deficit, and this year we will be able to make the most significant deposit in the Rainy Day Fund in more than a decade,” Wolf’s spokesperson J.J. Abbott said in a statement.

So why is this an area Wolf and GOP leadership can agree on, and is it really that important? We answers those questions — and more! — below.

What is the rainy day fund?

It’s actually called the Budget Stabilization Reserve Fund. It’s designed to serve as a emergency piggybank for events “involving the health, safety or welfare of the residents of this Commonwealth or downturns in the economy resulting in significant unanticipated revenue shortfalls cannot be dealt with through the normal budget process,” per state law.

The governor can request the use of those funds in the above circumstances, with support from two-thirds of both the House and Senate needed.

How much is in the fund?

At the moment? Just $22.5 million.

The majority of that money — $22 million — was deposited in 2018 after the last budget.

“I am pleased to say that Pennsylvania is today better equipped for fiscal stability than it has been in the past,” Wolf said in a statement at the time. “This rainy day fund deposit is a nest egg that we hope to grow, and an indicator of fiscal responsibility and stability that is a sign of clearer skies ahead.”

How much should there be?

There’s no hard and fast rule.

But Liz McNichol, a senior fellow at the D.C.-based Center on Budget and Policy Priorities, said a previous analysis by the think tank pegged the number at 15 percent of general fund spending.

In Pennsylvania, that number would be roughly $5.1 billion.

McNichol noted that the number will different based on how volatile a state’s revenue sources are. Gas and oil taxes are one such fickle source.

Uh — what happened?

Remember the Great Recession?

In 2009, facing a protracted budget fight and major shortfall, Gov. Ed Rendell and the Legislature decided to completely drain the $755 million rainy day fund.

It wasn’t the first time in recent history that Pennsylvania did that.

In fiscal year 2001, there was $1.127 billion in the rainy day fund. By the next year, it was all gone, the result of another, smaller recession.

McNichol said that kind of spending isn’t intrinsically the symptom of a problem.

It’s “not unusual to use funds in there,” she said, once an economic downturn hits.

“When better times come, you need to have a plan for putting money back in.”

How does Pennsylvania stack up?

Badly!

According to the National Association of State Budget Officers, Pennsylvania had the second lowest budgeteary reserve fund total in fiscal year 2019 (aka the one that ends June 30). Illinois, New Jersey, and Kansas tied for last with $0.

The median amount among the 50 states was $450 million.

So putting money in the rainy day fund is a no-brainer, right?

Yes and no.

Pennsylvania’s projected revenue for the fiscal year came in $910 million over projections, according to the Independent Fiscal Office. A decent chunk of that money is already earmarked for supplemental funding — or paying for unexpected costs or overruns.

Both Wolf and GOP leadership immediately agreed the surplus should go into the rainy day fund.

The experts the Capital-Star spoke to said money should be put in the reserve.

“If you look just at the rainy day fund and say, ‘should Pennsylvania put money aside for the future?’ the answer is yes,” Elizabeth Stelle, director of policy analysis for the conservative Commonwealth Foundation, said.

The question becomes more complicated, however, when you consider the amount of debt the state holds or what Stelle described as surplus money in special funds set aside for specific purposes.

Marc Stier is director of the left-leaning Pennsylvania Budget and Policy Center, which doesn’t consider those special funds to be up for grabs.

But he did agree that putting money in the rainy day fund — while a necessity — isn’t a simple choice.

“It’s just shameful we’re not funding General Assistance,” he said of a cash benefit program for Pennsylvanians with disabilities and addiction that is on the chopping block. Wolf had sought $34 million to keep the program going and $12.6 million to pay for current costs.

“So much in the state is underfunded,” Stier said, citing pre-K, higher education, and infrastructure.

“For me to say that $200 million should have been spent otherwise,” he continued, “we’re underfunding the rainy day fund, too.”

As the Associated Press reported, Pennsylvania’s budget is once again full of patches: one-time spending fixes, money borrowed from court settlements and not repaid, increasing debt.

The Commonwealth Foundation and the Pennsylvania Budget and Policy Center both agree that there needs to be a seismic shift in how the state budgets. But — as you can imagine — they have different ideas how to fix it.

The foundation wants the Legislature to advance a constitutional amendment that caps and ties spending to revenue growth, while the center favors raising billions in revenue by increasing taxes on the richest Pennsylvanians.

But what everyone can agree on: Another recession is coming. It’s just not clear when.

Associate Editor Sarah Anne Hughes covers the governor and Pennsylvania's agencies. Before joining the Capital-Star, she was the state capitol reporter for Billy Penn and The Incline, and a 2018 corps member for Report for America. She was previously managing editor of Washington City Paper, editor-in-chief of DCist, and a national blogger for The Washington Post.

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