The Washington Research Council has released a policy brief taking a close look at the history of Washington’s constitutional budget stabilization account. In sum,
Since the budget stabilization account (BSA, or rainy day fund) was established in 2007, the Legislature has transferred or appropriated funds from it in each biennium except 2011–13. Since 2013–15, the state has experienced “extraordinary revenue growth,” most of which is required to be saved in the rainy day fund. Instead, the Legislature has spent almost all of it. The balance in the account is now $1.182 billion; using these funds requires a supermajority vote (60 percent) from both chambers (with some exceptions).
How much should the state have in reserve? The Council points out the experts’ answer to that question has evolved.
Despite the regular withdrawals, there is currently $1.182 billion in the BSA, which is 2.7 percent of NGFS+ spending. Including the unrestricted NGFS+ ending fund balance, total reserves are estimated to be 5.4 percent of NGFS+ spending in 2017–19 (based on the Nov. 2017 outlook).
Before the Great Recession, the rule of thumb was that states should have about 5 percent of their budget in reserves. Now, analysts believe that the right level of reserves may be different for each state and would be better linked to things like the state’s revenue volatility and economy (Pew 2017). States with volatile revenue streams need to keep more in reserve than those with more reliable revenues. According to the Tax Policy Center, Washington’s revenue structure is among the 20 least volatile nationally (Rueben and Randall 2017).
In this short legislative session, the rainy day fund has become something of a focus. The governor has proposed using it to accelerate funding of teacher salaries to satisfy the state Supreme Court’s McCleary mandate. The state treasurer has warned against dipping into the fund.
The WRC brief provides good context for understanding the coming debate.