Good start on state savings

By Patrick Gannon - The Insider

Republicans who control the state budget have been criticized for tax changes in recent years, as well as for the spending priorities they’ve expressed through state budgets.

That comes with the territory.

But one aspect of those budgets that’s gone relatively unnoticed is the amount of money that the General Assembly is putting away for tougher economic times, natural disasters and other unforeseen circumstances.

After a $450 million deposit in the 2014-15 fiscal year, the state has more than $1.1 billion in its savings reserves account, more cash than ever before. General Assembly leaders are taking saving seriously.

The state’s current and broad policy for its “rainy day fund” is to maintain sufficient cash to respond to unanticipated events, such as natural disasters, economic downturns, threats to public safety and other emergencies. The goal is to have 8 percent of the previous year’s operating budget available for such uses. State law requires a General Assembly appropriation to spend money from the fund

The $1.1 billion represents 5.3 percent of the previous year’s budget. It’s the first time in roughly two decades that the savings reserve account topped 5 percent of the budget. To reach 8 percent, the General Assembly would need to add about $550 million to the rainy day fund.

Between the late 1990s and the 2000s, legislators spent savings mainly to respond to the Great Recession, hurricanes and a lawsuit. In 2001-02, for example, $248 million was withdrawn for the response to Hurricane Floyd. Three years later, $154 million was used after several hurricanes. And in 2008-09, lawmakers spent $637 million from reserves to offset revenue losses from the recession, according to the legislature’s Fiscal Research Division.

By the late 2000s, only $150 million remained in the rainy day fund. This decade, the General Assembly has increased that steadily to where it is today.

Republican leaders have said they will continue to prioritize savings as part of the budget process.

And they should. With another recession potentially looming and some experts warning about an active hurricane season in 2016, extra reserves might come in handy.

At the same time, a new General Assembly committee is taking a deeper look at how the state saves money and when and how to spend it, with a plan to make recommendations for the 2017 long legislative session.

Put simply, the state doesn’t have a definitive policy on when to save money and how much to save, nor an articulated statement on when or how money from savings reserves can be spent.

Robert Zahradnik of Pew Charitable Trusts, which studies rainy day funds across the country, said many states have developed specific conditions — spelled out in law or in state constitutions — for withdrawals from rainy day funds. North Carolina, he said, is one of five states with a rainy day fund that doesn’t have conditions to help guide when to spend.

In other words, he said, “lawmakers need to decide what constitutes rain.”

While the current leadership in Raleigh has shown strong fiscal restraint by saving the money, they — or their successors — might not always show the same restraint in spending it.

Patrick Gannon is the editor of The Insider State Government News Service in Raleigh. Reach him at [email protected]

By Patrick Gannon

The Insider

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