Mignon Memo: This Week in Texas
Wednesday, August 11th, 2010
This week, we continue our focus on frequently asked questions.
What is the Rainy Day Fund? Where does the money in the fund come from and are there limitations on its use?
In 1988, Texas voters approved a constitutional amendment that required periodic transfers into a new Economic Stabilization Fund, or “Rainy Day Fund,” as a cushion against unexpected revenue shortages. Deposits into the fund consist of transfers of half of any General Revenue Fund surplus in each biennium and 75 percent of any oil and natural gas production taxes exceeding 1987 levels. The fund is capped at 10 percent of the total general revenue budget. Texas State Comptroller Susan Combs has forecast that Texas will have $8.2 billion in its Economic Stabilization Fund by Aug. 31, 2011.
In Texas, in order to use the money in the fund to address an unexpected budget deficit or a decrease in revenue certified by the comptroller, there must be a three-fifths vote of each house of the Texas Legislature. In order to use money for any other purpose, like a budget shortfall, a two-thirds vote is required.
The majority of states have rainy day funds. In the last two fiscal years, states have tapped their rainy day funds at levels not seen since the 2001 recession. States have various restrictions on how the money can be removed and spent. In some states, the governor has the power to transfer funds but in other states, only a supermajority vote of the legislature can approve the transfer of funds.
As state budgets are under pressure across the United States, state legislators are being encouraged to continue adding to these rainy day funds. In a speech last week to the Southern Legislative Conference of the Council of State Governments, Federal Reserve Chairman Ben Bernanke encouraged states to continue amassing these reserve funds even as the economy slowly improves.