At Eggs and Issues last Wednesday, Governor Deal covered a range of issues. One of those issues was the Rainy Day Fund – it’s depletion during the height of the recession and Deal’s work in building it back up.
Deal laid out just how stark the situation was when he took over. “When the Great Recession dealt its heavy blow to our state before my time in office, Georgia used over $1.4 billion from its Rainy Day Fund in just two years, and it was dangerously low in January of 2011. We had only enough in our Revenue Shortfall Reserve to fund state government for just two days. Now, thanks to conservative budgeting, investing in areas that produce positive results, and placing the remainder of our yearly revenues into the Rainy Day Fund, it now stands at over $2.3 billion, putting us in a safe position for any economic eventualities the future may bring,” said Deal.
“That is one of the key reasons why we have maintained our AAA bond rating – one of the very few states in the nation to do so for 20 consecutive years.”
A report last year from Pew explained just how big the impact from rainy day funds is on state credit ratings. Only 12 states hold the highest rating across all 3 rating agencies – North Carolina, Tennessee and Virginia are the only three other Southern states besides Georgia to be one of the 12 (unless you count Texas as Southern – then it’s four).
As Pew’s research showed, even states with AAA ratings are unsure about how to manage rainy day funds and how it relates to their credit ratings. “As a result, some state officials are reluctant to tap reserves even during recessions for fear of a ratings downgrade.”
In Georgia’s case, there was no such problem. Before the recession, Georgia’s rainy day fund was up to $1.7 billion in 2007. By the end of fiscal year 2010, there was just $268 million in the fund. Since then, Georgia has added to the fund every year during Deal’s administration. Georgia was a sure fire test case that withdrawing rainy day funds is not necessarily regarding maintaining a high credit rating.
The rainy day fund question comes into play politically by looking at Delaware. Also AAA-rated, Delaware did not withdraw at all from the rainy day fund during the recession. Delaware did have to engage in deep spending cuts and there was still a funding gap. The state made up the difference “with a combination of spending cuts, federal economic stimulus funds, and nearly $200 million in tax hikes but no money drawn from reserves.”
As readers are probably aware, Democrats would likely rather not cut as much from the budget during a recession and make up the difference elsewhere.
However, unless one of the two Staceys win next year, a tax hike will remain largely off the table for Georgia governor policy. As the Pew research demonstrated, and as Deal’s record shows, the budget may take a hit but that AAA rating can still be maintained come the next time to dig into the rainy day fund.
To read the full report from Pew – http://www.pewtrusts.org/~/media/assets/2017/05/statesfiscalhealth_creditratingsreport.pdf
