OKPOLICY.ORG
Last week, news broke that the Office of Management and Enterprise Services (OMES) had borrowed money from the Rainy Day Fund to make budget allocations to state agencies. The fund had a beginning balance of some $243 million, and OMES apparently transferred the full amount.
It’s rare, if not unprecedented, for the state to borrow money from the Rainy Day Fund, but this year, revenues have fallen below projections and the funds that are typically borrowed from, including the Cash Flow Reserve Fund and Transportation funds, have already been emptied.
OMES Director Preston Doerflinger based the transfer on a section of state law (Title 62, Section 34.55) under which he “may transfer money from any treasury fund to the General Revenue Cash-flow Reserve Fund as required to satisfy monthly allocations…” According to Doerflinger, “Rainy Day money is housed in the state treasury, making it a treasury fund.” Doerflinger insists the money will be repaid before the end of the state fiscal year on June 30th. However, both House Speaker Charles McCall and House Minority Leader Scott Inman have questioned the legality of borrowing from the Rainy Day Fund, and Rep. Inman may request an Attorney General’s opinion on the subject.
With attention now focused on the Rainy Day Fund, it’s a good time to update our 2015 blog post that explains how money from the Fund can be used.
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. At the beginning of FY 2017, the Fund had a $243 million balance.
The Constitution (Article X, Section 23) allows the Fund to be spent in four instances:
1. 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. That would equal $91 million based on the current balance.
Can this portion be used in 2017? Yes, in part. The state declared a $34.6 million revenue failure in February, so up to that amount could be appropriated as mid-year supplementals. However, this money can be used only to bring any agency back up to its level of funding in effect at the beginning of the year. The Legislature has now approved a $34 million supplemental for the Department of Human Services. Of that amount, $4.2 million was appropriated from the Rainy Day Fund, equal to the amount it was cut due to the mid-year shortfall. The remaining $29.8 million was appropriated from the Unclaimed Property Fund.
2. 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. That would also equal $91 million.
Can this portion be used? Yes. The FY 2018 GR certification is $5.123 billion, which is $96 million less than the certification that was made for FY 2017 last June. Therefore the full amount can be appropriated by the Legislature for FY 2018.
3. Up to one-fourth of the amount in the Fund may be appropriated for an emergency. There are two methods for declaring an emergency: The Governor, with the agreement of two-thirds of both 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 both 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, $60.8 million, could be appropriated by the Legislature with supermajority approval.
4. 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 conditions for allocating the $10 million for at-risk manufacturers do not apply.
Should the Rainy Day Fund be tapped this year?
The bottom line is that $91 million of the $239 million remaining in the Rainy Day Fund (after the DHS supplemental) can be used to help address the FY 2018 budget shortfall with a simple majority, and an additional $61 million can be used with supermajority support. While the top priority is for recurring revenues that help provide sustainable solutions to the state’s chronic budget shortfall, it would be appropriate for the Legislature to tap most or all of that amount, given the size of the budget hole and the likelihood that the state’s fiscal outlook will improve past FY 2018.
The Rainy Day Fund was designed to be spent when revenues cannot support ongoing state operations — this is precisely our current situation, and we will need all the means at our disposal to avoid catastrophic cuts to state services.
Why not have what North Dakota has? A state bank. Instead of taking such “rainy day” money out of the hides of the poor, and school children, simply get a line of credit from a state bank. As an added benefit, North Dakota’s state bank has better earnings than Goldman Sachs last year. Could that be a better pension investment than hedge funds?