Rainy Day Fund sees slight drop amid pandemic

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Alabama’s Rainy Day fund dropped from $1.79 billion during fiscal 2020 to $1.42 billion in fiscal 2021, according to an analysis by Pew Charitable Trusts.

Alabama is one of 22 states not expected to see an increase in reserves in 2021, according to the report, which is based on preliminary figures between March and May of 2021 released by the National Association of State Budget Officers.

Alabama could operate for 52.4 days on its rainy day funds in 2021, down from 70.1 days in 2020 and 76.9 days in 2019. The state ranks 16th among the states for the number of days it could survive on reserves.

The rainy day fund represents 14.5% of the total general fund expenditures in 2021, down from 19.2% in 2020 and 21.1% in 2019. In 2014, the fund represented just 0.9% of expenditures.

States struggled in 2020 during the COVID-19 pandemic as businesses were shuttered in an effort to slow the spread. However, Alabama, as did other states, fared better during the pandemic than in the 2008 recession. Between 2007 and 2010, the reserve fund dropped from $1.2 billion to $72 million, according to the analysis.

“Rainy day funds accounted for 65 cents of every dollar in estimated total balances for fiscal 2021, compared with 45 cents heading into the 2007-09 downturn,” according to the analysis. “The contrast highlights the more prominent role rainy day funds currently play in managing state fiscal uncertainty. Ending balances, which make up the remainder of total balances, were historically high because of a surge of tax collections before both recessions. But ending balances fluctuate from year to year, so policymakers cannot count on them as cushions against future budget uncertainty to the degree that they can with rainy day funds, which are saved until policymakers decide to draw them down.”

Alabama’s constitution limits the withdrawal of rainy day funds to less than 10% of general fund appropriations of the previous fiscal year minus any amounts withdrawn previously that have not been repaid. Lawmakers are required to restore amounts taken from the account in 10 years.

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