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 RDF 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 Legislature can appropriate money from the Rainy Day Fund with a simple majority vote of both Chambers, with the exception of an emergency declaration, which can be declared in one of two ways. 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.
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 and ongoing budget shortfall, appropriations totaling $442 million in FY 2015-17 reduced the RDF balance to $93 million.
The chart below shows the ending balance of Oklahoma’s savings funds from FY 1999 through FY 2019. The FY 2019 combined balance of the three funds, $1.059 billion, is 77 percent ($461 million) higher than the previous record high of the Rainy Day Fund.
Strong revenue growth in FY 2018 and 2019 resulted in large deposits that increased the Rainy Day Fund balance to a record $830 million, or 11.9 percent of the General Revenue Fund estimate for FY-2020. As of 2019, the national average of state rainy day fund ending balances was 7.5 percent of expenditures, an all-time record.
Other Reserve Funds
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 cannot be made until state revenues have recovered to their levels prior to the decline in tax collections of 2014-16. The threshold was met for the first time in FY 2019, so that deposits to this fund are likely to be required in FY 2021. If so, the GRF revenues will be reduced by the amount of the deposit, which could be in excess of $200 million.
In the 2019 session, the Legislature diverted additional funds into savings accounts. First, it directed that $200 million be deposited in The Revenue Stabilization Fund. Second, it created the Rate Preservation Fund for Medicaid health care providers. An increase in the federal share of Medicaid made it possible to reduce state funding for health care by $29 million. That amount is reserved to preserve current provider rates in the event of a future reduction in the federal share.