When it Comes to Rainy Day Funding, How Smart is Virginia?

Apr 14, 2017

Is Virginia saving money for a rainy day? The Pew Charitable Trust says the commonwealth could do a better job saving for when times are tough.

When should state leaders tap into Virginia’s rainy day fund? When revenue projects go wrong? Or when the economy drops? The way things work now, the trigger is a forecast error — essentially getting revenue projection wrong.

But Robert Zahradnik at the Pew Charitable Trust says Virginia would be wise to change the trigger. He says economic volatility might be a better trigger. Or maybe revenue fluctuations. 

“You could have a  forecast error when the economy is growing, and you end up taking some money out of the rainy day fund and then you have less available for when the economy really hits a downturn like the Great Recession for example.”  

Take 2005, for example. Virginia started drawing down on the rainy day fund even though the economy was humming along at a record pace. And as a result, there was less money in the rainy day fund when the economy crashed.

Frank Shafroth at George Mason University disagrees with the new Pew report suggesting Virginia change its trigger for tapping into the rainy day fund. He says money that sits around idle isn’t helping anybody. 

“So when it’s idle, it’s there as some sort of a reserve. But a greater reserve that you have the less it’s working to benefit the taxpayers in your state or your city or your country or your university.”

Currently, Virginia is one of 15 states that use budget forecasting errors as a trigger for tapping into the rainy day fund.