Read more at the Philadelphia Business Journal
Ever since the Great Recession. Pennsylvania’s rainy day funds have essentially been nonexistent with a recent Pew Charitable Trust report indicating the state’s meager reserve wouldn’t even last three hours. Now for the first time in nearly 10 years, Pennsylvania is depositing money into the budget stabilization fund – a step both the state leader and outside experts are calling significant.
Gov. Tom Wolf said Thursday he is putting $22 million into the rainy day fund, saying the deposit represents a sign of the state’s improved financial condition.
“The commonwealth is better equipped for fiscal stability than it has been in a long time,” he said.
Pennsylvania gutted the rainy day fund in the years following the 2008 financial crisis. It fell from $755 million in fiscal year 2009 to just $700,000 in fiscal year 2010, according to a Pew study titled, “Fiscal 50: State Trends and Analysis.” The report put Pennsylvania among the worst states for its rainy day fund, with “so little stowed away that it could fund operations for less than a tenth of a day.” Meanwhile Pennsylvania has faced a budget crisis in recent years, with the current fiscal year representing the first time in recent memory a balanced budget was passed on time.
“This reserve matters because it is a sign of both fiscal responsibility and a possibility of maintaining fiscal health,” Wolf said, pointing out the $22 million exceeds pre-budget projections of $14 million for the deposit.
Both Wolf and State Treasurer Joseph Torsella said efficiencies helped generate savings that led to the rainy day fund contribution. Reducing the fees associated with the state’s investment funds, streamlining procurement and other processes through the Governor’s Office of Transparency, Innovation, Management and Efficiency, and lowering the number of prisoners in the state’s Department of Corrections, and in turn, the cost to house them, all brought about cost savings.
“By taking common sense steps, we can, in fact, be more responsible stewards of taxpayer dollars,” Torsella said.
“Is this enough for the long run? No,” Torsella said, answering his own question. Regardless, he underscored the governor’s emphasis on the significance of the deposit, albeit a small amount by municipality measures.
“This is a big moment for Pennsylvania,” said Jonathan Moody, a research officer with The Pew Charitable Trusts and one of the authors of “Fiscal 50.”
“This would bring the state up to about a quarter of a day’s operations in their savings,” he continued, noting that still puts Pennsylvania behind the national median of nearly 25 days.
“While [the $22 million] is small, it is an incremental step,” added Steve Bailey, manager of fiscal policy research at Pew. Lots of factors can determine the ideal amount for a state to have in this reserve fund, like the volatility of its economy and leaders’ perspective on what exactly it would cover during another downturn, he said.
But with revenue growth increasing, albeit slowly, “this is the time when states really can and should be saving, so these good times can buffer when the next recession will hit,” Moody said. “Everything starts with that first step and this is showing a commitment to saving. This is a credit positive for the state.”
With the fund crawling higher, Bailey urged state leaders to use this time to revisit the savings policies dictated by law. “No matter what has happened in the past, now is the time for Pennsylvania to think about how it wants to shape its reserve policies moving forward,” he said. “What more and more states are doing and what we have identified as best practices – tie that deposit directly to when revenues are exceeding a typical growth rate of the state.”
To support its rainy day fund, Bailey explained, Pennsylvania directs 25 percent of its unspent revenue to savings, dividing the surplus among the budget stabilization account and spending the rest on other uses. The problem, however, is the state didn’t have a surplus in recent years and continued to tap into the minuscule fund resulting in a negative balance at the end of fiscal year 2017.
During the Thursday announcement, neither Wolf nor Torsella spoke to the possibility of adjusting state savings policies, though the treasurer said his aim is to make sure this is not a one-time fluke.
“The hope is this will be a repeating event,” he said.