Senator Hillyard Has It Right On Raising the Rainy-Day Fund Cap

By Derek Monson

Last week, Senator Lyle Hillyard posted to The Senate Site that he and Representative Dean Sanpei would be sponsoring legislation to raise the limits on the general and education rainy-day funds (or budget reserves) which are currently at 8 percent and 9 percent of the previous year’s budget, respectively. Their proposal would raise these limits to 9 percent of the last year’s budget for the general rainy-day fund, and 11 percent for the education rainy-day fund.

This proposal is the right thing to do for Utah taxpayers and families. It is prudent and wise fiscal policy, and Sutherland Institute supports it.

First, as Sen. Hillyard correctly notes, this policy change will “help us live and provide a stable budget in less-certain times.” As Utah’s experience during the most recent recession suggests, having a healthy source of one-time funds set aside in savings gives policymakers the flexibility and financial cushion needed to make modest (and healthy) cuts to government spending. Just as important, if not more so, building up sufficient savings protects Utahns from being forced to accept truly harmful policies – such as deep spending cuts to essential programs and services and/or significant, economically damaging tax increases.

In other words, having significant one-time savings set aside protects recession-ravaged Utah taxpayers and families from further short-term harm, such as cuts to things like safety-net services. It also protects them from spending cuts or tax increases that generate short-term gain (balancing Utah’s budget) in exchange for long-term loss (fewer jobs, less household income and slower economic growth).

Second, while Utah’s pre-recession rainy-day fund savings were significant, the Great Recession showed that they were, by themselves, inadequate. The recession required policymakers to end or reallocate certain one-time budget items – cash-funded road and building construction/maintenance, for example – instead of further cutting other government programs and services. In effect, these one-time budget items were treated as informal rainy-day funds, in order to avoid more damaging spending cuts elsewhere. There is no guarantee that these fiscal cushions will be available in the future. For instance, economic circumstances or other spending needs may not allow the Legislature to return to previous levels of cash funding for roads and buildings. This makes lifting the caps on rainy-day funds a prudent way to maintain sufficient budget reserves in the face of this uncertainty.

For these and other reasons, Sutherland Institute supports the Hillyard/Sanpei proposal to raise the current caps on state rainy-day funds. We hope that the Legislature and the governor will enact this prudent fiscal policy change into law.

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