Because of a projected $500 million surplus, Louisiana’s savings account for troubled financial times will receive a sizable $125 million bump in its deposits. But the “rainy day” fund still will remain below its peak after years of depletion to fill budget gaps.
While other states have focused on rebuilding their reserves since the last recession, Louisiana spent those years careening from one budget crisis to the next, until Democratic Gov. John Bel Edwards and the majority-Republican Legislature reached a seven-year tax deal in 2018.
Recent surpluses have started refilling Louisiana’s rainy day account, formally called the Budget Stabilization Fund. But lawmakers and the governor also stripped a lucrative replenishment source to pay for roadwork rather than sock into the savings account.
Meanwhile, the $406 million balance in the fund remains below the level of reserves that national credit rating agencies advise—and below the level that half the nation’s states have in their rainy day funds—even as economists have warned a national recession could be on the horizon.
“Now’s a good time to prepare by filling up the rainy day fund,” said Robert Travis Scott, president of the Public Affairs Research Council, a nonpartisan government watchdog group. “We do not have it filled to the rate that’s probably prudent for the next economic cycle, and it’s clearly short of what the rating agencies say.”
While Moody’s Investors Service improved Louisiana’s credit outlook to “positive” last week, the Wall Street credit rating agency dinged the state for its low rainy day fund, calling it a “credit weakness.”
The Budget Stabilization Fund, first created in 1990, topped $853 million at its high point in the 2008-09 financial year, according to the treasurer’s office. Former Gov. Bobby Jindal, Edwards and lawmakers siphoned off money five times in the last decade to lessen financial gaps, draining it to $287 million three years ago
Edwards, running for a second term on the Oct. 12 ballot, highlights the increased rainy day deposits as a sign of Louisiana’s improved financial footing, pushing back on criticism that he and lawmakers raised taxes too high.
But while the upcoming surplus deposit will boost the savings balance to more than $530 million, its highest level since 2014, that’s not nearly enough for Treasurer John Schroder.
“You’ve got to be well over a billion dollars to be healthy,” the Republican official said. “If we’re going to create some stability in this state, having a healthy savings account is part of that stability.” Read the full analysis from the Associated Press.
