Despite a now decade-long economic expansion in the country, New York still lags behind other states when it comes to its rainy day reserves, according to a report released today by New York State Comptroller Thomas P. DiNapoli.
“The time to prepare for serious fiscal problems is before they arrive,” DiNapoli said. “The need for a cushion to fall back on is especially urgent today amid signs of a slowing economy. As the financial capital of the world, New York is particularly sensitive to economic downturns, which can put a significant strain on our budget.”
The state’s two statutory rainy day reserve funds, the Tax Stabilization Reserve Fund (TSRF) and the Rainy Day Reserve Fund (RDRF), together held just over $2 billion at the end of the last fiscal year, a little more than a third of their authorized levels. New York’s rainy day funds as a percentage of General Fund spending, at 2.8 percent in state fiscal year (SFY) 2018-19, are well under the national median of 7.5 percent. For comparison’s sake, Texas’s Rainy Day reserve funds are estimated at 22.8 percent, California’s at 12.4 percent, Michigan’s at 10.9 percent and Florida’s at 4.4 percent.
The TSRF and RDRF were both established primarily to manage budget gaps when revenues fall short due to an economic downturn or other circumstances. However, the state has not consistently added resources to these funds, which can limit their value in the event of a financial emergency.
More recently, in state fiscal years SFY 2015-16 through 2017-18 when revenues were growing and the state was receiving significant one-time monetary settlements, no deposits were made to either fund.
The Division of Budget (DOB) deposited $250 million in the RDRF at the end of the last fiscal year, the first increase in three years. While that brought its total to $790 million, it was still more than $3 billion below its statutorily authorized maximum. DOB plans to add $428 million in March of 2020. The last deposit to TSRF was made in March of 2015. As of SFY 2018-19, the fund stood at 1.7 percent of General Fund spending, $198 million short of the maximum.
DiNapoli noted it was only a decade ago when damaging impacts of the Great Recession forced state policymakers to cut spending, raise taxes and take other detrimental budgetary actions in part because the state lacked adequate rainy day funds. He said, however, while DOB is projecting a budget shortfall estimated at $6.1 billion next year driven partially by growing Medicaid costs, using reserves is not a solution to address these problems. The state should identify realistic solutions to both its current-year Medicaid imbalance and its structural budgetary gaps as fully and early as possible.
In order to ensure more robust reserves will be available next time economic downturns or other conditions merit their use, DiNapoli proposed the following reforms:
- Fully funding the rainy day reserves to currently authorized levels, approximately 7 percent of General Fund spending, within five years and boosting reserves further to 10 percent of General Fund revenues within ten years.
- DOB should be required to develop a multi-year plan that would raise New York’s rainy day reserves to a level that would significantly mitigate the state’s next severe fiscal challenge. Key elements of the plan would include:
- Requiring monthly deposits to rainy day reserves of at least 0.35 percent of General Fund revenues, unless policy makers explicitly determine such deposits are not feasible in a given year. This step would consistently build the state’s statutory rainy day reserves.
- Additional deposits up to a limit of 1 percent of General Fund revenues should be made when possible to reach the goals outlined. Such deposits could include resources now designated as informal reserves, such as certain funds from monetary settlements.
- Assessing the adequacy of rainy day reserves at least annually. In addition, the state should establish clear policies for expected use of these resources.
Read the full report, The Case for Building New York State’s Rainy Day Reserves, including the history of the TSRF and RDRF, or go to: https://osc.state.ny.us/reports/state_budget_reports.htm
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