What is a rainy day fund?

A rainy day or budget stabilization fund is similar to a savings account for a family. You put aside a little extra cash each month so that in an emergency you don’t have to use money that you need for basic expenses such as food or rent. This philosophy goes for state budgets as well. If you want to ensure that we can fund programs that are essential to Arkansas, even in rough economic times, you set aside money during the good times into a rainy day fund.

Why have a rainy day fund?

When the economy slows down, unemployment grows, family incomes slow and tax revenues fall. To balance the budget, states have to cut spending (most of which goes to education, health and human services) or increase taxes. These actions can undermine the long-term stability of a state’s tax and budget system and hurt the economy, not to mention families who depend on essential services. A rainy day fund can help us ride out the lows of a business cycle until incomes and tax revenues start to rise.

Why now?

In Arkansas the $700-$900 million forecast surplus is not a permanent shift in income, but rather generated by economic growth, previous tax increases and spending cuts. This is an unprecedented opportunity to lay the foundation for better fiscal management in the future.