States Should Prepare for a Rainy Day
The WasteWatcher
In the destructive wake of natural disasters like Hurricanes Helene and Milton as well as wildfires in California, Texas and other Western states, it is a good time to consider the status of state funding to be prepared for and recover from them. These surplus revenue funds or budget stabilization funds are also called rainy-day funds and have long helped state finances absorb unanticipated events like natural disasters and the COVID-19 pandemic.
After Hurricane Harvey in 2017, for example, Texas legislators used a portion of their state’s rainy-day fund to help cover recovery costs, and after Hurricane Ian in 2022, Florida lawmakers considered tapping into the state’s emergency reserves to address their own recovery needs. California has also periodically used its reserves for wildfire response and prevention efforts.
The availability of federal aid for disaster relief, however, has led many state legislators to hold their hands out rather than bolstering their rainy-day funds. For example, the continuing resolution to fund the federal government through March 14, 2025, which failed to pass the House on December 19, 2024, included $110 billion in disaster assistance for Florida, Georgia, North Carolina, Oklahoma, and the Western region. While some disasters may require federal help, state legislators should not leave impacted homeowners and businesses at the mercy of Washington budget battles. They would better serve their constituents by increasing their rainy-day reserves to provide a more reliable and predictable means of covering future revenue shortfalls or unexpected expenses based on the size and scope of prior disasters.
However, at the end of the 2024 state fiscal years, 11 states had such scant rainy-day funds that if forced to operate solely on their reserves they would be out of money in less than 30 days. New Jersey’s reserves would fund the state for only two days, Illinois’s for 15 days, and Louisiana and Wisconsin for 29 days each. On the more responsible end, 25 states have at least 50 days in reserve and five states, Alaska, Arkansas, New Mexico, North Dakota, and Wyoming, have more than 100 days of reserves.
States that draw on rainy-day funds to pay for non-emergency expenditures tend to have lower reserves and less ability to respond to emergencies. They should emulate states that restrict the use of funds to not only increase their ability to weather the next storm but also reduce their reliance on federal help, saving taxpayers across the country from being forced to finance their shortfalls.