[UPDATE: A previous version of this post incorrectly said that the maximum amount for the Rainy Day Fund is 15 percent of the current year’s revenue estimate. The maximum is actually 15 percent of the amount certified in the General Revenue Fund for the preceding year.]
Last week, State Finance Director Preston Doerflinger announced that the state was set to make a $307 million deposit into the Rainy Day Fund. This short primer explains how the Rainy Day Fund works and traces its rising and falling balances in recent years. A 1-page PDF version of this primer is available here.
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 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.
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 2000s, 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. Strong revenue growth due to 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 FY 2009.
The fund was exhausted to help reduce the impact of revenue shortfalls in FY ’10-11. The 2010 Legislature appropriated $224 million from the Rainy Day Fund to offset FY ’10 shortfalls, appropriated $273 million for the FY ’11 budget, and transferred $100 million to a cash fund to be used in FY ’12. Because GR exceeded estimates in the past two fiscal years, $249 million was deposited into the RDF at the start of FY ’12 and a $306.8 million was deposited at the start of FY ’13.
How it works
Money flows into 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 (unless it already has the maximum amount specified by the Constitution, 15 percent of the amount certified in the General Revenue Fund for the preceding year).
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 (less revenue comes in than was estimated by the Board of Equalization).
- 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. 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.
- As a result of voter approval of SQ 725 in 2006, up to $10 million may be spent on tax incentives for at-risk manufacturers. The fund has never been used for this purpose.
Unless revenue collections come in below appropriated amounts in the coming year, a maximum of one-quarter of the RDF could be appropriated upon an emergency declaration (see above).