Governor Schweiker introduced his proposed budget for the next fiscal year on February 5, 2002. Facing an over $700 million shortfall, the Governor's budget recommends using the "Rainy Day Fund" to balance the budget. Although the title appropriately implies that money is set aside for a "rainy day", for many people there remain questions about what is a rainy day and how the money can be used.

The Governor determines when Rainy Day Fund money is needed and proposes specific legislation for its use to the General Assembly. The General Assembly must approve the proposal by a two-thirds vote.

The intent and goal of the law is to build the Fund up to a reserve equal to 6% of estimated revenues. Over the past ten years the balance in the Rainy Day Fund has been steadily increasing (see scorecard), growing from only 0.2% of revenues in 1993-94 to over $1.1 billion in 2000-01, 5.8% of revenues.

Where Does Pennsylvania Stand?

At the end of last fiscal year, June 30, 2001 in most states, all but 7 states had a rainy day fund. The remaining 43 states had over $27 billion stashed in these savings accounts. However, the size of the reserves varied considerably from state to state. Pennsylvania's $1.1 billion, or 5.6% of revenues, was about average compared to all other states. Among competing states, Pennsylvania ranked fifth highest in the amount in its rainy day fund as a percent of revenues (see scorecard).

The budget proposal now in front of the General Assembly includes a transfer from the Rainy Day Fund of $550 million - nearly half of the present balance. The Budget states that the use of Rainy Day Fund money "will keep the Commonwealth's General Fund Budget in balance and avoid the need for a tax increase."

Pennsylvania is not the only state proposing to use its reserve account this year. Budget proposals in several other states call for tapping their Rainy Day Funds. Maryland plans to use $790 million this year, Virginia's governor proposed transferring $476 million, and Ohio withdrew $240 million.

Rainy Day Questions

The question facing the legislature as they consider this year's budget is whether this is the right time for Pennsylvania to use the Rainy Day Fund - and how much of the fund they should use to meet the state's budgetary needs. Tapping the fund, while forestalling tax increases, could have an impact on the state's interest rate on debt that incurs.

For future Governors, the questions of when to use the Rainy Day Fund, how much to use, and how much to set aside, will be among their most important decisions. Let's make sure we ask the current candidates for Governor what they will do if they are ever put into the position that Governor Schweiker found himself in this year.