(Bloomberg) -- Consumers are taught to save money during good times to prepare for the worst. Lawmakers who run U.S. states apparently haven’t learned that lesson.
An analysis by Pew Charitable Trusts found that the financial cushion states have for recessions is wearing thin -- despite the U.S. economy enjoying the second-longest expansion on record. States’ total balances -- including rainy-day fund reserves and general fund money left over at the end of the year -- cover a median of 31 days of general fund expenditures as of fiscal 2018 estimates, 10 days less than right before the recession, the report found.
The situation is worse in states like Kentucky, where the rainy-day fund and leftover cash covers only about a third of a day of general fund expenditures, according to an analysis of fiscal 2018 estimates. The data are based on estimates from states before the close of the fiscal year and could change, Barb Rosewicz, project director at Pew, said in an email.
Rainy-day funds are especially important to pay attention to amid projections that another U.S. recession is likely in the next year or two. They can also signal improvement in credit quality: States like California, New York, Washington and Ohio have boosted their total balances from pre-recession levels, a good sign for investors owning the debt.
Outgoing California Governor Jerry Brown has made the rainy-day fund a priority during his tenure. Doing so has paid off: S&P Global Ratings pointed to the creation of the rainy-day fund in 2015, when it lifted the state’s credit rating to the highest since 1999.
The AA- rated state’s general-obligation bonds have traded at lower yields than AAA rated debt in part because of the improvement in California’s credit quality and demand for tax-exempt municipals in the high-tax state.
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