With the state now facing a massive budget shortfall, attention has turned to tapping the Rainy Day Fund to close a portion of the gap. This post gives an overview of the Rainy Day Fund and how it might be used to help close Oklahoma’s current budget hole. The bottom line is that of the $535 million currently in the Fund, up to just under 5/8ths, or $325.5 million, could be appropriated for next year.
How the Fund can be used
The Rainy Day Fund (formally known as the Constitutional Reserve Fund) was created in 1985 in response to a dramatic revenue downturn. It is designed to collect extra funds when times are good and to spend those funds when revenues cannot support ongoing state operations.
Money flows in to the Rainy Day Fund when revenue is more than estimated. Any General Revenue (GR) Fund collections beyond 100 percent of the estimated amount must be deposited into the Rainy Day Fund, until the RDF reaches its constitutional cap of 15 percent of the current revenue estimate for the General Revenue Fund.
The Constitution (Article X, Section 23) allows the Fund to be spent in four instances:
- Up to three-eighths of the amount in the Fund may be used to make up for a shortfall in the current year’s General Revenue collections.
Can this portion be used? No. There is not expected to be a shortfall in current year collections, so this portion of the Fund is unavailable.
- Up to three-eighths of the amount in the Fund may be used in the budget for the next year if General Revenue collections are forecast to be less than the current year’s collections.
Can this portion be used? Yes. The FY 2016 GR certification is $191.7 million less than what was certified for FY 2015 (see Appendix A-1). This full amount, which is slightly less than 3/8ths of the current RDF balance, would be available for appropriation in FY 2016 if approved by a simple legislative majority.
- Up to one-fourth of the amount in the Fund may be spent through the appropriations process for an emergency. There are two methods for declaring an emergency: The Governor, with the agreement of two-thirds of each the House of Representatives and the Senate, can declare emergency conditions exist; or the Speaker of the House and the President Pro Tempore of the Senate, with the agreement of three-quarters of each the House and Senate, can jointly declare emergency conditions exist without the Governor’s consent.
Can this portion be used? Yes. The full amount of this portion of the RDF, $133.8 million, could be appropriated by the Legislature with supermajority approval.
- Up to $10 million may be spent on tax incentives for at-risk manufacturers, subject to certain conditions.
Can this portion be used? No.
The ebb and flow of the Rainy Day Fund, 2001-2015
The chart below shows how the Rainy Day Fund has been used to help maintain fiscal stability over the last decade.
During the early part of the 2000’s the balance of the Rainy Day Fund grew to a peak of $340 million. In FY 2003 and 2004, nearly the entire balance of the Fund was needed to maintain service levels during a severe revenue downturn. By budget year 2009, strong revenue growth due to economic recovery and high energy prices, combined with not spending any of the Fund, allowed it to reach its legal maximum at the time, $597 million.
The Fund was exhausted again during huge revenue shortfalls in FY 2010-2011. In 2010, the Legislature appropriated $224 million from the Rainy Day Fund to offset FY 2010 shortfalls, appropriated $273 million for the FY 2011 budget, and transferred $100 million to a cash fund to be used in FY 2012.
With revenue collections exceeding estimates, large RDF deposits were made in FY 2011 and 2012, creating a balance of $578 million. In 2013, an emergency appropriation of $45 million was made to help with expenses associated with the deadly tornadoes in Moore. A very small deposit ($2.7 million) was made in 2013, and no deposit was made in 2014, when revenues came in below the estimate. There is not expected to be a deposit in 2015.