Note: This data has been updated. To see the most recent data and analysis, visit Fiscal 50.
Editor’s note: The downloadable data file on this page was updated on March 22, 2023, to correct the projected days’ worth of general fund expenditures held in total state balances in fiscal year 2023.
States’ total financial cushion reached all-time highs at the start of the current budget year, building on record gains the year before. Since the start of the pandemic, higher-than-forecasted revenue and historic levels of federal COVID-19 aid helped spur widespread growth in states’ rainy day funds and end-of-year balances. As states approach the close of fiscal year 2023, most anticipate continued savings growth but at a slower clip amid mounting fiscal and economic threats.
After an early pandemic decline in rainy day fund balances, states reported that their combined savings reached a record $134.5 billion by the start of fiscal 2023, according to figures collected by the National Association of State Budget Officers (NASBO) between August and November of 2022. And amid widespread, multiyear budget surpluses, states also reported the largest-ever annual increase in leftover general fund budget dollars, known as ending balances.
Rainy day funds, also known as budget stabilization funds, hit all-time highs in 37 states by the end of fiscal 2022—the most in at least 23 years. A smaller number of states (17) reached the highest number of days they could run government operations using rainy day funds alone, due largely to a historic spike in annual spending levels during the same time. Because the size of state budgets varies widely, it is fairer to compare the strength of rainy day funds by measuring how many days’ worth of spending each state’s savings could cover rather than by ranking funds by dollar amounts. Days’ worth of spending can fluctuate because of changes in state balances, changes in spending levels, or both.
In addition to policymaker actions, deposit rules tied to volatility in some states have directed at least some of the above-normal revenue growth or one-time influxes of dollars over the past two budget years into state rainy day funds. For example, Tennessee adds 10% of its year-over-year additional revenue to its rainy day fund, which reached a record $1.6 billion by the end of fiscal 2022, or $675 million more than just before the pandemic. Maryland dedicates at least a portion of its nonwitholding income tax revenue that exceeds the 10-year average to its savings, which nearly doubled to $1.2 billion by the end of fiscal 2022 compared with a year earlier. Louisiana deposits 25% of higher-than-forecasted revenues, which helped add $227 million to its rainy day fund by the end of fiscal 2022.
Budget surpluses and related gains in states’ total financial reserves during fiscal 2021 and 2022 are not expected to continue at the same rate in fiscal 2023 because of growing budgetary threats. Higher-than-forecasted tax revenue growth, historic federal pandemic aid, and record financial reserves have strengthened states’ budget conditions in recent years. However, policymakers now face an inflection point as they navigate several looming challenges, including slowing revenue gains associated with moderating economic growth and tax cuts enacted in 2021 and 2022, spending pressures from still-elevated inflation rates and rising wages, and a tapering of federal pandemic aid.
With a record $134.5 billion in savings by the end of fiscal 2022, states could run government operations on rainy day funds alone for a median of 42.3 days, equal to 11.6% of spending—or approximately 50% more than fiscal 2019, just before the pandemic recession. Still, the strength of states’ rainy day funds ranged widely—from 349.6 days’ worth of spending in Wyoming to nothing set aside in New Jersey.
In fiscal 2020, the first budget year affected by the pandemic, states’ rainy day funds collectively fell for the first time since the Great Recession in 2007-09. Some states withdrew only a small share of their savings, but others tapped substantial amounts to help plug budget holes.
Initially, most states were cautious using their dedicated savings accounts because of uncertainty about how the pandemic and resulting recession would unfold and about the availability and extent of federal aid. Instead of first drawing down reserves, many states managed fiscal 2020 budget gaps through a combination of spending cuts, federal aid, and a historically high cache of leftover general fund budget dollars, known as ending balances, that had built up over two previous years of widespread revenue surpluses.
Among the 14 states that withdrew a combined total of $8.2 billion from their rainy day funds in fiscal 2020, all but two fully replenished their savings by the end of fiscal 2022. For example, Nevada fully replenished the $332 million it emptied from its rainy day fund in fiscal 2020. Hawaii and New Jersey were the only two states that made withdrawals in fiscal 2020 and had yet to fully replenish their reserves. By the end of fiscal 2022, Hawaii had refilled more than three-quarters of the savings it had withdrawn. And New Jersey grew its savings to $2.4 billion by the end of fiscal 2021—its largest annual increase in more than 20 years—but then emptied its account at the end of fiscal 2022.
At the close of fiscal 2022, the second full budget year affected by the pandemic:
States’ total balances—the combination of rainy day fund balances and leftover budget dollars known as ending balances—reached a record $342.9 billion by the end of fiscal year 2022, an increase of $102 billion from the prior year. Together, those funds would be enough to run state government operations for a median of 126 days, equivalent to 34.6% of spending—approximately 27 more days than a year earlier. By the end of fiscal 2022, total balances in 39 states could cover more days’ worth of general fund spending than a year earlier.
Although both rainy day fund levels and ending balances reached record amounts in the past two years, states’ leftover budget dollars were especially high due to higher-than-forecasted tax collections and the availability of flexible federal pandemic aid, which helped explain widespread budget surpluses. By the start of this budget year, states’ collective ending balances had increased more than sixfold, from $33 billion by the end of fiscal 2020 to $210.4 billion by the end of fiscal 2022. But ending balances fluctuate from year to year, so policymakers cannot count on them as cushions against future budget uncertainty to the degree that they can with rainy day funds, which are saved until policymakers decide to draw them down. For instance, 50-state ending balances are expected to decline by roughly one-third by the end of the current budget year, according to data collected by NASBO.
In the first budget year affected by the pandemic, states relied more on ending balances than on rainy day funds to balance their budgets. In net dollars, a calculation that accounts for totals falling in some states while rising in others, ending balances fell by nearly $10 billion in fiscal 2020, while rainy day funds declined by $1.8 billion. Conversely, both types of funds increased in fiscal 2021 and 2022.
States’ results for fiscal 2022 show:
States use reserves and balances to manage budgetary uncertainty, including revenue forecasting errors, budget gaps during economic downturns, and other unforeseen emergencies, such as natural disasters. This financial cushion can soften the need for spending cuts or tax increases when states need to balance their budgets.
Because reserves and balances are vital to managing unexpected changes and maintaining fiscal stability, their levels are tracked closely by bond rating agencies. For example, Standard & Poor’s upgraded Connecticut’s credit rating in November 2022, citing the state’s buildup of reserve levels as part of its rationale.
There is no one-size-fits-all rule on when, how, and how much to save. States with a history of significant economic or revenue volatility may desire larger cushions. According to a report by The Pew Charitable Trusts, the optimal savings target of state rainy day funds depends on three factors: the defined purpose of funds, the volatility of a state’s tax revenue, and the level of coverage—similar to an insurance policy—that the state seeks to provide for its budget.
Better data about each state’s own financial risks can help policymakers navigate future budget challenges. In addition to perennial uncertainties, states face long-term fiscal pressures created by demographic shifts, technology-driven disruptions, and the impacts of a changing climate. Research from Pew indicates that two fiscal management tools—long-term budget assessments, which help states identify challenges that can build over time, and budget stress tests, which help determine a state’s own risk from adverse events—can help states better understand and prepare for these fiscal challenges, such as by refining a savings target.
Reserves and balances represent funds available to states to fill budget gaps, although there may be varied levels of restriction on their use, such as under what fiscal or economic conditions they can be used. In addition, limits are often set on how much states may deposit into rainy day accounts in a given year when seeking to replenish their reserves.
General fund reserves and balances may not reflect a state’s complete fiscal cushion. States may have additional resources to soften downturns, such as dedicated reserves outside of their general funds or rainy day accounts. In addition, the scope of each state’s general fund expenditures can differ, so comparisons across states should be made with caution. For example, some states—such as Michigan—spend considerable amounts outside of their general fund. One way to standardize the size of reserves and balances is to calculate how many days a state could run solely on those funds, even though the scenario is highly unlikely.
Colorado and Illinois do not have a rainy day fund as defined by Pew, despite balances reported within NASBO’s surveys.Colorado maintains mandatory general fund balances, but these reserves do not respond in any way to changing economic or fiscal conditions. Illinois’ Budget Stabilization Fund has a stringent repayment provision that requires all withdrawals from the fund to be repaid in full within the fiscal year, making it, in effect, a working-cash fund rather than a rainy day fund.
Download the data to see individual state trends. Visit Pew’s interactive resource, Fiscal 50: State Trends and Analysis, to sort and analyze data for other indicators of state fiscal health.
Justin Theal is an officer and Alexandre Fall is a senior associate with The Pew Charitable Trusts’ state fiscal policy project.