What’s the Rainy Day Fund? Let’s ask an expert.
“It’s basically set up to keep the bumps out of what’s normally a bumpy economy,” Ross Ramsey, the managing editor at the Texas Tribune told KUT News in 2011. It’s kind of like “if you had an automatic deduction from your paycheck,” Ramsey said. “So that while you were employed, a dime from every dollar or something like that went into your savings account and you didn’t even think about it. And that money built up and you had sort of an agreement with yourself not to use it unless you lost your job or something you know financially tragic happened in your life.”
And Texas is enduring a financial tragedy — the drought, which has a price tag of over $8 billion and counting. The Texas Water Development Board puts an additional price tag on water issues in the state — the cost of doing nothing. If the state doesn’t build and conserve enough water supplies over the next fifty years, it could cost Texas up to $116 billion in income and over a million jobs.
Now lawmakers are looking at tapping the Rainy Day Fund to start funding Texas’ Water Plan.
The fund began after a period of high oil prices in the late seventies and early eighties, and with them, high revenues in the state, followed by big spending by the legislature. Then those prices collapsed, leaving the state in a bind on spending. So when oil prices went up again, the state decided to set some money away.
In 1987, State Representative Stan Schlueter came up with the notion that you could take some of the tax money you collect in good times, and use it during bad times. “You know, like squirrels, if you put the nuts away in good time, then you’ll have them when times are bad,” said Ramsey. The bill became a constitutional amendment, which was approved by voters November 8, 1988.
The fund was actually named the Economic Stabilization Fund, but has become known as the Rainy Day Fund in the years since. It can be used to “plug holes in the budget, defend against an economic perfect storm and keep the deficit clouds at bay,” the Texas Tribune says.
The fund’s money primarily comes from oil and gas tax revenues. Once state revenues from oil and gas reach a certain level, based on what Texas collected in oil and gas revenues in 1987, then most of the extra money goes into the Rainy Day Fund (25 percent of that extra money can be used in general revenues, however).
If legislators want to use the fund to plug holes in the budget, it requires a three-fifths vote. But if they want to use it for anything else, it requires a two-thirds vote.
As drilling has boomed in the state, the fund is now sitting with over $8 billion, an is projected to grow to nearly $12 billion by 2014-15. That’s more than double what it had in 2010-11.
48 other states have Rainy Day Funds, but Texas’ is one of the largest.
The fund hasn’t been tapped for years, most recently in 2005 for various appropriations, including public education, Medicaid and Child Protective Services.