Rainy day funds are high now

State Balance Levels Reached New AllTime Highs in Fiscal 2022 Recent balance trends and current fund policies demonstrate how states have taken actions to strengthen their rainy day funds, also known as budget stabilization funds. In fiscal 2021, state rainy day fund balances reached a then new high of $121.8 billion, a 58 percent increase over fiscal 2020 levels. This steep increase in reserves was largely the result of stronger than anticipated revenue growth in fiscal 2021 that led to large surpluses and additional rainy day fund deposits in many states. Rainy day funds continued growing in fiscal 2022 to total $134.5 billion, another all-time high; this growth was widespread, with 43 states recording year-over-year increases. According to enacted budgets, a majority of states plan to continue increasing their rainy day funds in fiscal 2023. As a share of general fund spending, total rainy day fund balances reached 13.3 percent in fiscal 2021 and dropped slightly to 12.4 percent in fiscal 2022 due to the significant increase in expenditures that year. (See Figure 10.) The median rainy day fund balance as a share of general fund spending was 10.3 percent in fiscal 2021 and 11.6 percent in fiscal 2022, and is expected to tick up slightly to 11.9 percent in fiscal 2023. While reserve levels continue to vary by state, 44 states reported rainy day fund balances representing at least 5 percent of their general fund expenditures in fiscal 2022 – including 30 states with balances exceeding 10 percent of spending.

Total balances include general fund ending balances and the amounts in states’ budget stabilization or rainy day funds. In fiscal 2021, total balances more than doubled to reach a then new high of $241.3 billion, equivalent to 26.4 percent of total general fund spending that year. The median balance was even higher, at 27.1 percent, for fiscal 2021. This rapid growth in state balance levels was driven mostly by revenues beating state forecasts – by a considerable margin in many cases. Based primarily on preliminary actual data, state total balance levels continued to grow rapidly in fiscal 2022 from an already high baseline, reaching $342.9 billion, or 31.7 percent as a percentage of general fund spending. In states’ enacted budgets for fiscal 2023, total balance levels are expected to decline; this likely reflects states’ plans to spend down a portion of their larger-than-expected ending balances from the prior year, including for one-time investments. (See Figure 11.) Additionally, fiscal 2023 balance projections in this survey are likely to be less up-to-date (and less reflective of more recent improvements in revenue performance) than fiscal 2022 balance figures that were reported based on preliminary actual data for most states.

State Budget Outlook: Making Strategic Investments to Build Resiliency As this survey is released, most states are approaching the midpoint in fiscal 2023 and preparing to introduce their governors’ budget proposals for fiscal 2024 (and fiscal 2025 in the case of states with biennial budgets). After two consecutive years of robust revenue growth and widespread budget surpluses, states are on track to record another year of revenue growth in fiscal 2023. That said, there is some downside risks to the economic outlook that states are watching closely and considering in their budgetary decision-making. By using surplus funds for one-time investments in capital construction, paying down debt, and making supplemental pension payments, states are strengthening their fiscal resiliency over the longer term. With rainy day fund and total balance levels at record levels, states have a strong fiscal cushion and are more prepared than ever to weather a possible economic downturn. States also continue to leverage federal aid from the American Rescue Plan Act to support residents and businesses affected by the pandemic and make strategic investments to strengthen the resilience of their economies and communities.