BTC BRIEF: Saving for a Rainy Day - Implementing Rainy Day Fund Reforms Now Could Protect Public Investments in Future Recessions

By Edwin McLenaghan
Public Policy Analyst, BTC
June 2011

KEY FINDINGS:

  • The North Carolina Rainy Day Fund (RDF) works to minimize the negative effect of economic downturns through responsible savings deposits during years of economic growth.
  • The failure to save adequately during times of growth has limited the ability of the RDF to help address budget shortfalls during economic downturns, leading to painful cuts to public investments and services that hurt the state’s economy and cause hardship for struggling families.
  • Changes to North Carolina’s rules for RDF contributions could create a more robust RDF that would be better able to protect the state’s economy and critical public structures from the negative effects of the next recession.
  • Reforms that raise the RDF target to 16 percent, integrate proactive savings decisions into the budget process, and implement an economy-based formula to mandate contributions only during periods of robust growth can ensure adequate public savings without hindering economic activity or displacing resources needed to fund key programs and services.
  • Moving savings decisions to the front of the budget cycle would institutionalize a commitment to savings, increase the likelihood of contributions, and grant legislators the flexibility to vary the size of contributions depending on overall economic conditions.

 

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