Connecticut’s new rules for its Rainy Day Fund could be a model for other states — that according to a new study by the Pew Charitable Trusts.
After some energetic lobbying by Comptroller Kevin Lembo during the legislative session, Connecticut is now on sort of an automatic savings plan for its Rainy Day Fund, which by the way, Lembo would like us to call the Budget Reserve Fund.
When certain taxes receipts reach a high point, some of that cash now has to be put away in the fund — by law. Robert Zahradnik of the Pew Trusts said that’s a really important reform. "Swings in state revenue are growing more dramatic, and states aren’t as well prepared as they could be to manage the inevitable volatility of tax collections," he told WNPR. And it's particularly true, he said, in Connecticut, which has the 13th most volatile revenue stream in the country. That’s because an important slice of its residents receive capital gains from the stock market — something that can’t always be relied upon.
So now, in good years, when that capital gains tax revenue is flowing, we’ll be putting away some cash for the lean years. Right now only a handful of states manage their reserve funds this way, and Zahradnik would like Connecticut’s change to become an example. “We’ve been doing some work in the state of Illinois, which currently doesn’t have a rainy day fund, and is also facing some significant fiscal challenges," he said. "We’ve helped them put together a similar kind of proposal that’s working its way through the state budget process, as we speak and we’re going to continue to talk to states about, how do you understand your volatility and plan for it.”
And yet another upside for states who adopt these ideas — the ratings agencies love them…Zahradnik said the agencies will no doubt be watching to see how closely Connecticut is able to follow the new savings disciplines its put in place.
