Frankfort’s arrival at a bipartisan “Rainy Day Fund” consensus is impressive
The pace at which Frankfort arrived at a consensus that Kentucky should have a credible rainy day fund (RDF) has been impressive. The fact there’s bipartisan agreement that having a real RDF is a priority hopefully means the commitment will become ingrained in state budgets for decades to come.
It was only thirteen months ago when the Bluegrass Institute recommended a “historic downpayment” in the our budget reserves. We highlighted that for decades Kentucky was known to have one of the weaker rainy day funds in the nation. And, pointed out that our competitor states were far more successful building their budget reserves. We called on the General Assembly to enact a budget with a minimum balance of $750 million in the budget reserve trust fund.
They accomplished that goal and much more. The Republican supermajority left the 2021 session with just over $1 billion tucked away in the reserve account and required any end-of-the year surplus be allocated to that account. Last July, Democratic Governor Andy Beshear announced another $1 billion was deposited to the RDF to close out the fiscal year.
It’s been remarkable to see that the debate in the ‘22 session hasn’t been about how much to spend from the budget reserves but, instead, how much to save. It continued yesterday with the Senate unveiling their version of the biennial budget.
From Joe Sonka in the Courier Journal:
The Senate would appropriate an additional $250 million to the state's rainy day fund, growing it to $1.75 billion — close to what was left by House Republicans. Both the House and Senate version spent far less than the budget proposal of Gov. Andy Beshear, who called for appropriating all projected revenue — in total nearly $3 billion more than the Senate — while also increasing the rainy day fund.
It’s an important moment when both chambers of the Republican legislature and the state’s Democratic Governor are highlighting their commitment to maintaining a generous level of reserves.
What to expect now?
Appointing a conference committee to write the final budget is next. Indications are the conference committee will start it’s work next week.
According to the CJ, in order to preserve their constitutional authority to override any gubernatorial vetoes, the legislature must pass a final budget before midnight March 30th. (Note: You can take it to the bank they’ll meet that deadline).
The final budget reserve balance could end up being lower than either the House or Senate versions. We believe, however, Kentucky’s taxpayers will score a significant win if it remains at or near $1.5 billion.
Preserving a solid RDF balance is essential to the next step: developing a statutory program to effectively manage it. The Bluegrass Institute has been working with state fiscal experts at the Pew Charitable Trusts to develop policy recommendations on that front.
First things first. Kentucky is moving in the right direction. Frankfort should continue building upon the bipartisan consensus to save for a rainy day.