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 Fund collections beyond 100 percent of the estimated amount must be deposited into the Rainy Day Fund. In addition, if corporate income tax collections for the upcoming year are projected to be above the five-year average, 25 percent of the surplus is deposited in the Rainy Day Fund (the remainder goes to the Revenue Stabilization Fund). There is a cap on the Rainy Day Fund set at 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 3/8ths to make up for a shortfall in the current year’s collections.
- Up to 3/8ths if General Revenue collections for the upcoming year are forecast to be less than the current year’s collections.
- Up to 1/4 through the appropriations process for an emergency.
- Up to $10 million on tax incentives for at-risk manufacturers.
The RDF had reached a record balance of $806 million at the end of FY 2019, but the Legislature made substantial withdrawals in the 2020 session to deal with budget shortfalls resulting from low oil and gas prices and the Covid-19 pandemic. The Fund began FY 2021 with a balance of just $58.6 million; it received a deposit of $312 million at the end of FY 2021, some $109.5 million from surplus corporate income tax collections over the course of FY 2022, and $575.7 million at the end of FY 2022. These deposits brought the RDF balance to just over $1.05 billion at the start of FY 2023, which equaled its constitutional cap of 15 percent of General Revenue collections.