Friday, July 08, 2011
Flanigan explains process that goes into decision on using Rainy Day Fund
In his latest newsletter, Rep. Tom Flanigan,R-Carthage, explains the process that has to be followed if the state of Missouri's Rainy Day Fund is used to cover costs of the May 22 Joplin Tornado and other disasters that have occurred this year:
In recent weeks, the use of the Budget Reserve Fund has been a hot topic amongst politicos in Jefferson City, as well as at home in coffee shops and at the dinner table. Just how the state is going to pay for the rebuilding and recovery in disasters zones in all corners of our state is still to be determined, and this fund is certainly an option that many are considering. I thought I’d take a moment to share with you the history behind this fund and what it would take to access it. The fund may not necessarily be used, but it certainly doesn’t hurt to know what information your elected leaders must consider when making critical decisions that will have far-reaching impact on our state and local governments.
Pre-Budget Reserve Fund
Prior to the 1980’s, the state of Missouri had no fund that it could access if balances in the Treasury became dangerously low. During the recession of the early 80’s, it became apparent that some sort of cash-flow emergency fund was necessary so that the state could continue to pay its debts in the event that cash flows came in well short of projections. The “Cash Operating Reserve Fund” was established to that end and later made a constitutional fund by a vote of the people.
Still yet, the state had no fund to access in the event that a massive increase in spending, The Budget Stabilization Fund, or “Rainy Day Fund” was authorized and utilized through the late 1990’s for that exact purpose. In fact, it was this fund, and not the current Budget Reserve Fund, that was tapped to help supplement the budget in the wake of the Great Flood of 1993.
Voters Authorize Budget Reserve Fund
In November of 2000, the voters were asked if consolidation of the two existing funds should be authorized by the constitution. They affirmed, with 59.2% of the voters requesting consolidation and mandating reserve requirements. Following this statewide approval, the Cash Operating Reserve Fund and the Budget Stabilization Fund were combined to form the Budget Reserve Fund. This fund has a dual purpose to allow the state to draw funds to help cover liabilities in the event its cash balances are too low, and also to be a source of revenue in the event the state faces an emergency too much for the regular budget to absorb. The fund is required to be at least $7.5%, and no more than 10%, of general revenue receipts, which today puts its balance at roughly $500 million.
Requirements to Access and Repay Fund
There are several stipulations that surround the use of the fund. If being utilized for cash flow purposes by a state department, it must be paid back by May 15th of the same fiscal year, plus interest. The General Assembly is not required to authorize these transfers. However, the requirements are much different if being used as a loan to cover emergency spending. They are:
•The Governor must make an emergency appropriation request
•The General Assembly must pass the motion to use the fund, including the specific amount to be borrowed, by a 2/3 majority in each chamber, House and Senate.
•The amount borrowed from the fund cannot exceed ½ of the total balance of the fund
•The amount borrowed must be paid back, plus interest, to the fund in at least 1/3 increments in successive fiscal year state budgets.
In my Opinion
The Budget Reserve Fund should remain a viable option to be considered in the event that costs to restore Joplin and the other regions of the state indeed overwhelm the state’s budget. At this point, there is positive news, however, that keeps that decision at bay. Each year, estimates are produced for the following budget year, and these estimates are what the General Assembly must use to form the state’s multi-billion dollar budget. Fortunately, the money the state actually received for the Fiscal Year 2011 operating budget was more than we anticipated, and therefore we have a surplus in revenue. It is from this surplus, in addition to already budgeted funds, that the state has been relying on and has committed to disaster relief and restoration.
As the discussion and debate moves forward in the coming weeks and months on how to continue to pay for the rebuilding and recovery, these are just some of the considerations we are confronted with. The task will not be easy, but we certainly will be informed.