Lawmakers obsess over “rainy day fund” while much of NC remains under water

[Editor’s note: The latest BTC Brief from the North Carolina Budget and Tax Center is out and it is a “must read” for anyone interested in what’s really going on with state budget debate. In “Saving for a rainy day when NC needs and umbrella today,” BTC analyst Cedric Johnson provides a powerful critique of recent proposals at the state Legislative Building to further bolster the state “rainy day fund” at the same time that a host of core public systems and structures remain destructively under-funded.]

Lawmakers have introduced companion bills – House Bill 7 (HB7) and Senate Bill 14 (SB14) – that would make changes to the state’s existing Savings Reserve Account, commonly referred to as the Rainy Day Fund. The proposed changes would alter existing state law in two deliberate ways:

1. Mandating how deposits are made into the Savings Reserve Account
2. Placing restrictions on the ability of policymakers to access the Savings Reserve Account

The Rainy Day Fund is a critical tool to ensuring the stability of public investments through economic downturns and ensuring that the state can respond adequately to unexpected disasters. However, in the current context, reforms to the state’s Rainy Day Fund must balance the immediate needs in communities with setting aside dollars for as yet unidentified and unanticipated future needs. Today, in particular, the Rainy Day Fund is a critical source of funding for the immediate needs in Eastern North Carolina as the region rebuilds from Hurricane Matthew.

The current Savings Reserve Account balance is approximately $1.475 billion after accounting for relief funding provided for the hurricane disaster and wildfire relief appropriated in December. Existing state law does not stipulate an exact balance that the Rainy Day Fund must meet; rather, there is a goal of 8 percent of prior year appropriations. North Carolina’s Rainy Day Fund balance is approximately 6.6 percent of total state appropriations in the past year, significant progress from 3.7 percent in 2006.

Nearly $674 million in General Fund revenue has been placed into the state’s Rainy Day Fund in the past two fiscal years alone. Setting aside these dollars has meant North Carolina has not done what it needs to meet the needs of communities and to ensure that the economic expansion reaches every North Carolinian. The result is that the state continues to reduce its investment as a share of the economy, and in the past year it held spending to the arbitrary formula of growth in population plus inflation.

Adapting the Rainy Day Fund reforms to ensure dollars are accessible, savings don’t squeeze out immediate needs North Carolina already has many of the recognized measures of an effective Rainy Day Fund. North Carolina does not cap the size of its Rainy Day Fund, does not have onerous replenishment rules, does not have limits on the use of funds nor require supermajority votes to access the funds.

Lawmakers are not prohibited from depositing additional dollars into the Rainy Day Fund – the amount of dollars that can go into the Rainy Day Fund is uncapped. The proposed changes would actually move North Carolina away from many of these best practices while also putting in place stronger deposit rules that prioritize savings over addressing immediate needs. As lawmakers pursue the proposed changes under HB7 and SB14, ensuring that the state can fund immediate needs and that the Rainy Day Fund is set up to allow for stability in public investments over time is important.

Here are three ways to improve the proposed changes to the Rainy Day Fund.

Click here to continue reading “Saving for a rainy day when NC needs and umbrella today: Balancing the goal of stability in public investments with an adequate response to community needs.”