Rainy Day Fund
Oklahoma’s Rainy Day Fund helps protect against economic downturns. The Rainy Day Fund – formally known as the Constitutional Reserve Fund – was created in 1985 in response to the dramatic revenue that accompanied that decade’s oil bust. 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 until the Fund reaches the maximum amount, or cap, specified by the Constitution. The current cap is 15 percent of the current revenue estimate for the General Revenue Fund.
The Constitution 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 collections.
- 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.
- Up to one-fourth of the amount in the Fund may be spent through the appropriations process for an emergency.
- Up to $10 million may be spent on tax incentives for at-risk manufacturers. This provision, added by State Question 725 in 2006, has never been used.
The chart below shows how the Rainy Day Fund has been used to help maintain fiscal stability over the last two decades.
In 2001, the Rainy Day Fund balance 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 FY 2008, strong revenue growth that accompanied the economic recovery and high energy prices, combined with not spending any of the Fund, allowed it to meet its legal maximum at the time, $597 million. In 2007 and 2008, when money that would have gone to the RDF exceeded the cap, the “spillover” funds were appropriated for a combination of one-time and ongoing expenditures.
The Fund was depleted 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. In response to a severe budget shortfall, an appropriation of $150 million for FY 2016 reduced the balance to $387 million. This appropriation was increased by $79 million during the 2016 session in response to mid-year revenue failures and another $66 million was appropriated for FY 2017, leaving a balance of $240 million.
In 2016, the Legislature passed HB 2763, which created a second reserve fund known as the Revenue Stabilization Fund. It is intended to protect the state budget from swings in gross production and corporate income tax collections. Deposits to the new Fund won’t be made until state revenues have recovered to their levels prior to the decline in tax collections of 2014-16.