Strengthening Louisiana’s Rainy Day Fund

Strengthening Louisiana’s Rainy Day Fund

Posted by: Teaway Zehyoue Collins

A new report by the Center on Budget and Policy Priorities presents recommendations about why and how states should strengthen their Rainy Day Funds. Louisiana’s Rainy Day Fund, created in 1990 and formally called the Budget Stabilization Fund, is a savings account funded by mineral revenues. The purpose of the Rainy Day Fund is to help stabilize the budget in Louisiana when the economy is experiencing tough financial times in order to avoid cuts in services and programs. Currently, Louisiana’s Rainy Day Fund balance is $854 million.

Louisiana is in a budget crisis of historic proportions, and the state is projecting a $1.6 billion shortfall for next fiscal. Instead of relying solely on spending cuts to critical public programs such as higher education and health care, Louisiana needs to strengthen its Rainy Day Fund and make more effective use of it. Current policy, however, makes using the fund difficult.  First, use of the fund requires a super majority vote of the Louisiana House and Senate.  Second, Louisiana’s Constitution requires that the fund be immediately replenished regardless of the condition of the state’s economy.  Recommendations for improving the fund:

  1. Changing the replenishment rule so that refilling the fund is not required until economic conditions have improved; and
  2. Removing the requirement for a supermajority of legislators to approve use of the Rainy Day.

By strengthening Louisiana’s Rainy Day Fund, it can more effectively meet its purpose of stabilizing the budget during economic downturns and avoid or lessen cuts to programs such as health care and higher education that are vital to Louisiana’s future well being.