Budget Proposal Raids the Rainy Day Fund as Economic Slowdown Looms
We recently saw some great news with bearing on the 2023–24 state budget currently being hammered out in the Pennsylvania General Assembly. State Treasurer Stacy Garrity announced that Pennsylvania’s savings will earn $437 million in interest payments along with another $158 million in the state Rainy Day Fund. That’s nearly $600 million in investment earnings. We now have $5 billion in our Rainy Day Fund and another nearly $8 billion in reserves; these sums will help the state weather unexpected financial shortfalls.
The bad news? Democrats’ budget proposal will devour the $5 billion with new spending, and their massive proposals include only a slight increase for public safety. That will be devastating.
After the COVID-19 pandemic, it became clear that Pennsylvania needed a healthy Rainy Day Fund to cover unexpected expenses, like those caused by natural disasters or economic recessions.
Without a robust Rainy Day Fund, we’ll be forced to make painful choices. Do we cut essential services, raise taxes, or borrow money? Any of those choices could cripple us economically and affect the quality of life for Pennsylvanians.
Our state budget heavily relies on taxes for revenue, which can be volatile. Economic conditions, changes in federal policies, or fluctuations in industries like energy or agriculture – the two key economic sectors in Pennsylvania – can significantly reduce our funds.
Our Rainy Day Fund smooths out those revenue fluctuations by providing a stable source of funding. During periods of high revenue, we deposit excess funds into the reserve; during periods of low revenue, we can tap into the fund to maintain budget stability.
This also boosts our state’s creditworthiness. Rating agencies see a well-funded reserve as a major asset when assessing a state’s credit rating. Better credit allows states to borrow money at lower interest rates, saving taxpayer dollars on debt-servicing costs.
A healthy Rainy Day Fund tells investors and financial markets that we are prepared to weather economic downturns, enhancing investor confidence and stability in the state’s economy.
And make no mistake, a downturn could be just months away. The state Independent Fiscal Office warned that consumer spending will cool and state revenue will retrench in the coming months as inflation continues eating into our spending power and federal COVID-19 emergency funding dries up.
We all agree that the Commonwealth needs to invest more to improve school funding and help our largest police departments meet staffing shortfalls, which are leading to crime spikes now extending into the suburbs. But the Democratic budget drains our savings and spends that money on misplaced priorities.
With budget negotiations getting underway before the June 30 deadline, I call on my colleagues from both sides of the aisle to protect Pennsylvania’s families and preserve the Rainy Day Fund.