When the Great Recession began to hit states, they had a total of $59.9 billion in reserves. A year later, total budget gaps were nearly double that figure, $117.3 billion.
“States found themselves woefully short in terms of the amount of savings they had to offset the budget shortfalls created by the crisis,” Robert Zahradnik of The Pew Charitable Trusts told lawmakers at the Midwestern Legislative Conference Annual Meeting. “A lot of that is because savings is not the highest priority when it comes to making state budgets.”
The fiscal crisis is over, but it has opened new questions about budget planning and management. Prior to the Great Recession, for example, a fiscal reserve of 5 percent of the total budget was considered a sound target. Now, Zahradnik said, the preferred goal tends to be between 8 and 10 percent. Part of the reason is that state revenue sources have simply become more volatile, thus the need to better plan for more-extreme “rainy days.”