OFFICIALS recently announced the state's Rainy Day Fund holds $577.5 million. That's close to the previous record of $596.6 million and far more than the two bucks and change remaining in the fund in January 2011.
The rapid refilling of the account owes much to Oklahoma's economic growth, but also to reforms approved by voters in 2004. When state tax collections exceed estimates, the surplus is deposited in the Rainy Day Fund, created by voters in 1985 (the first deposit was made in 1988) to provide a savings account for state government to tap during downturns.
That was the theory, anyway. In practice, lawmakers mostly treated it as another revenue stream. Money could be siphoned from the fund for “emergencies,” which were essentially whatever the governor and the Legislature agreed on. And it seems everything was an emergency. Among other things, the fund was raided for golf courses, cloud seeding, fire ant research and similar projects. The constant pillaging meant there was less money available when the inevitable economic downturn occurred and state revenue plunged.
From its creation in 1985 to 2004, more than $1 billion was spent from the fund. Former State Treasurer Robert Butkin found that $700 million was spent on so-called emergency projects during good economic times. The fact that lawmakers frittered away $700 million from a fund that has never held more than $600 million shows how badly the account was managed. That $700 million could have made a big difference during recession years.
Fortunately, 2004 reforms approved by voters increased the amount of rainy day money designated for true budget crises, and cut the amount available for emergency projects from half to just 25 percent.
Those reforms have clearly benefitted the state since the fund has now twice topped the $500 million mark despite dealing with a harsh economic downturn. The fund's pre-2004 high-water marks were $340.9 million in 2003 and $157.5 million in 2002. The spending discipline mandated by voters is translating into more substantial savings and fewer special projects of questionable value.
That's good, because a healthy Rainy Day Fund not only helps offset downturns, but also protects Oklahomans from tax increases. After the oil bust of the 1980s, the Legislature raised about $1 billion in new taxes between 1984 and 1989. In comparison, lawmakers simply used the Rainy Day Fund to offset revenue losses during the most recent recession, although some cuts still occurred.
The record amount of money in the fund today is already leading to calls to spend the cash. We've suggested that some one-time emergency needs may merit limited rainy day funding. Examples include new facilities for the medical examiner and state Capitol repairs. But we believe the vast majority of the money should be held in reserve for true rainy days.
Expending rainy day money for ongoing expenses increases the cost of government without a stable funding source, making severe cuts more likely when future downturns occur. That's especially difficult for areas like schools, roads and public safety.
By allowing robust savings to continue accruing in the Rainy Day Fund, state legislators can ensure that future changes in state spending are driven by policy decisions, not frantic reaction to a down economy.
That's a prospect all Oklahomans should cheer.