Mon July 15, 2013
State Rainy Day Fund Now Has Record Balance, But Not Everyone Is Happy
The state put a record level of savings in its so-called rainy day fund, which the governor says is an amazing bounce-back from nearly noting in the account two years ago.
With a transfer into the rainy day fund of $995 million, Gov. John Kasich says the account is now full, with a record-high balance of $1.48 billion. Richard Vedder is a distinguished professor of economics at Ohio University and a conservative.
“From a good governance point of view, having a healthy rainy day fund is a good idea. In fact, my only criticism of the current situation is that it’s not even bigger. I would prefer a rainy day fund that is closer to twice the size of what we have,” says Vedder.
Wendy Patton is a researcher on budget and tax issues with the progressive leaning Policy Matters Ohio, and she agrees with Vedder – but only in part.
“A rainy day fund or state savings for hard times is a prudent fiscal measure for any state," says Patton. "I think the issue in Ohio is where did the money come from, and based in part on the source, is this a prudent use of those funds.”
Kasich credits good management of state government and an improving economy under his leadership. But Patton says the rainy day money comes from one time windfalls, including the sale of liquor profits to JobsOhio, and from reallocations of aid that had gone to local governments. Vedder says it’s more complicated than that, and says that the fact that the state was able to build its rainy day fund up from virtually nothing in 2011 to a record amount now shows that the state’s economy is strong. Gov. Kasich has said surpluses can now be used for more tax cuts. Vedder likes that plan. But Patton says the income tax was created in the early 70s to help local governments, and cutting it while using revenue to build the state’s savings account is hurting them.
“We know that there’s a lot of struggle on the local level," says Patton. "Putting money away for savings instead of using it to support local governments as per a historic deal dating back to the 1970s is not the use of funds that we would advocate at this time in the Ohio economy.”
But Vedder disagrees that those promises need to be preserved now.
“Those things happened more than four decades ago," says Vedder. "And it seems to me that some political deal that was made in 1970 is relatively irrelevant to the current situation almost two generations later.”
This was the third deposit made to the rainy day fund by Kasich – the first, of nearly $247 million, was made in July 2011, at the end of the last six months of Democratic former Gov. Ted Strickland’s budget. But the current budget director says Kasich was managing the state by that point, so credit for that improvement belongs to him.