‘Rainy Day’ Fund Perilously Low From Shortage of Revenue

Posted by Alan Essig

A lack of adequate revenue continues to threaten the stability of Georgia’s budget and services that are crucial to the state’s economy. The latest evidence is in the State Accounting Office’s report for the budget year that just ended, which contained more bad news for the state’s bank account.

Georgia’s “rainy day” fund – money left over at the end of the budget year that the state sets aside to weather recessions and other unexpected drops in revenue – is dangerously low and likely to drop to $350 million by the middle of next year. With the last recession behind us, the fund should be moving in the opposite direction; we should be building it up for the next bad patch to minimize further cuts to schools, health care, transportation and other services. A fully funded rainy day fund would total approximately $2.6 billion.

Having that cushion, officially known as the Revenue Shortfall Reserve, is important for a couple reasons beyond just preparing for an economic downturn. The reserve is used to pay for an annual mid-year bump in education funding to cover the growing number of students in our grade and high schools. It is also key to protecting Georgia’s stellar AAA bond rating, which saves the state millions of dollars in interest payments on its routine borrowing. The people who assign those ratings like to know a state has enough money in reserve to keep paying its bills even in hard times.

Right now, there’s about $523 million in the rainy day fund. Assuming the Governor fully funds the upcoming mid-year boost for schools, it will be down to $350 million by the end of the current fiscal year on June 30, 2013.

To minimally increase the fund and pay for next year’s anticipated mid-year school funding increase, Georgia’s revenues would have to grow by over 7 percent this year. That’s highly unlikely — they’ve only grown 4.6 percent through the first two months of the fiscal year.

In developing a responsible budget for next year, the Governor should plan to increase the rainy day fund  by $300 to $500 million by June 30, 2014.

To do that, Georgia needs additional revenues, not only to adequately fund vital services like education, public safety, and transportation, which are important for a strong economy, but to drive an end-of-year surplus that would fully fund the mid-year boost for schools and significantly increase the rainy day fund.



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2 thoughts on “‘Rainy Day’ Fund Perilously Low From Shortage of Revenue”

  1. ” The reserve is used to pay for an annual mid-year bump in education funding to cover the growing number of students in our grade and high schools”

    I don’t understand what this means?

    1. In the spring, when the state budget is passed there is no way to really know how many students will start school in the fall so education funding is based on an estimate of how many k-12 students will enroll. As it turns out, each year the actual enrollment is greater than the estimate, which is why we have the Education Mid-Year Adjustment Reserve. The reserve funds the gap between the enrollment estimate and the actual enrollment growth. Without an adequate Education Mid-Year Adjustment Reserve, cuts would need to be made in other budget items to fully fund the increased cost of newly enrolled students.

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