Many states continue to enjoy enormous budget surpluses, thanks to the open spigot of federal assistance during the pandemic, rising incomes and, in energy-rich states, high oil prices. It’s tempting to keep slashing taxes and jack up spending. But heading into a potential economic downturn, with tighter monetary policy to counter persistently high inflation, the prudent course for state legislatures convening in the coming weeks is to batten down the hatches for storms ahead. Rainy-day funds, also referred to as stabilization accounts, are essential to weather everything from the vagaries of the business cycle to natural disasters and flawed budget forecasting.
Rainy days are coming. States should budget accordingly.
January 6, 2023