Public Assets Institute > Policy Areas > Family Economic Security > Using reserves, not filling them, is the hard part

Using reserves, not filling them, is the hard part

Based on the statute they enacted in 2012, the Vermont Legislature is now supposed to weigh budget decisions by how they affect Vermonters and how well they meet people’s basic needs for things like food, shelter, health, education, and a job that pays a meaningful wage. Lawmakers should apply similar principles to the use of rainy day funds.

According to a story last week in vtdigger, the Legislature is trying to figure out how to add more money to the state’s newest rainy day fund. Filling the fund is important, but ­the Legislature also should devote time to establishing guidelines for when to spend the money. This last recession was the worst in nearly 80 years, but neither the administration nor the Legislature saw fit to use any of the tens of millions of dollars Vermont had been socking away since the mid-1990s. Before Vermonters put more money into a rainy day account, they need to know the money will be available when it rains.

Vermont had more than $50 million in the so-called General Fund Stabilization Reserve throughout the recession. The administration and the Legislature claimed they couldn’t touch it, but the simple fact is the Legislature had the power to use the money if it wanted to. The Legislature relies on “notwithstanding” language all the time in bills that change established policies and procedures. Just look at how the Legislature has raided the Tobacco Fund over the years.

Rather than use existing reserves during the recession, the Legislature created another reserve fund— the General Fund Surplus Reserve—that is supposed to be more flexible than the stabilization reserves that have been around for decades. This new fund is intended for times of “economic and fiscal stress.” Basically, if the Legislature decides there isn’t enough money to operate state government, it can dip into this new reserve once it’s been filled.

But we learned over the last six or seven years that one person’s “economic or fiscal stress” is another person’s spur for belt-tightening. So the Legislature needs to establish rules for what will trigger the use of rainy day funds. As they’re supposed to do now with the budget, lawmakers should look at how Vermonters are faring to determine when to use rainy day funds. Increases in homelessness, high unemployment, or soaring demand for food stamps are some of the indicators that could trigger the use of reserve funds.

And while they’re researching effective triggers, legislators should take time to revisit the recession. They should ask various agencies and departments of state government what problems or hardships might have been avoided if Vermont had chosen to use its available reserves. They made a clear decision not to use reserves, so they need to assess whether that decision was the right one.

We will have another recession. Let’s prepare for it.

Posted by Jack Hoffman on February 11, 2014 at 9:07 am

Comments are closed.