Just like families, state governments store away money in a rainy day fund. According to the Tax Policy Center, a state’s rainy day fund, otherwise known as a budget stabilization fund, earmarks surplus revenues to cover unexpected shortfalls or expenses. (States also count on the federal government for funds. See most and least federally dependent states.)
How each state fills the fund varies. Most push some or all of their year-end surplus monies into the rainy day piggy bank, the Tax Policy Center notes. Others specify which sources will contribute to the fund. For instance, a portion of California’s capital gains tax revenue is set for the budget stabilization account. Energy-producing states such as Texas and Louisiana take a chunk of oil extraction revenue and deposit the dollars into various reserve funds. Some states base rainy day collections on economic or revenue growth.
Fortunately, rainy day funds have apparently recovered from the deep cuts in revenues during the pandemic. Pew Charitable Trusts estimates that during fiscal year 2021, states plowed $37.7 billion into their rainy day funds – double the amount from the previous year – pushing the nationwide total to a record $114.6 billion. With that amount in their pockets, states could run their governments solely on rainy day funds for a median of 34.4 days, Pew calculates.
That is a far cry from fiscal year 2020, when pandemic-induced revenue shortfalls ravaged state’s set-aside funds, with the total amount falling for the first time since the Great Recession, Pew reports. Nearly a third of all states saw their savings wither – the most since 2010.
Yet most states managed to keep their fiscal house pretty much in order. According to Pew, for the fiscal year ending June 2020, states had amassed $71.6 billion in rainy day funds, which is fairly close to the pre-pandemic level of $78.7 billion. Fifteen states withdrew $12.4 billion from their rainy day coffers in fiscal year 2020, the first budget year impacted by COVID-19.
To identify states with the highest and lowest rainy day funds, 24 Wall St. reviewed the article Budget Surpluses Push States’ Financial Reserves to All-Time Highs published by Pew Charitable Trusts. States are ranked by the number of days they could run on their fiscal year 2021 savings alone. All data is from Pew except for GDP per capita, which is for fiscal 2021 and came from the U.S. Bureau of Economic Analysis.
By this measure of how long a state’s rainy day fund can sustain a state, Wyoming ranks highest. Its savings of $1.06 billion would support the state’s operations for 300 days. At the other end, with a shortfall of $1.30 million in its rainy day account, Washington state would run at a deficit of 0.02 days. (These are the states where people are paying the most taxes.)
Sponsored: Tips for Investing
A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.