Gov. Baker Sets Sight on Rebuilding Rainy Day Fund

Date: March 15, 2017

Before the 2008 recession, Massachusetts’ reserve fund had more than $2 billion shored up for tougher times. Since then, the amount has been spent down to plug various budget holes, and was at a balance of $1.298 billion as of Jan. 31. However, if Gov. Baker’s proposal to rebuild the fund is approved, the Commonwealth could adopt a better process for bolstering the state’s reserves and boosting its financial stability.

The first step in the process would be a pre-budget deposit equal to 50 percent of projected capital gains excess revenue. Currently, the deposit isn’t made until the end of the fiscal year, which makes it harder to guarantee if there are budget challenges. And, since $103 million (the expected capital gains revenue) is currently held aside until the end of the fiscal year, moving to a 50 percent pre-budget deposit would free up money for the operating budget. The second step would be a mandated 50 percent deposit of all tax revenue beyond the projection, regardless of revenue source. This would result in smaller, but more certain deposits into the reserve. For fiscal year 2018, this plan would guarantee a $51.1 million deposit at minimum, but is projected to be $98 million.

Gov. Baker says this method will put Massachusetts in a better position to deal with future challenges. The Massachusetts Taxpayer Foundation also believes the plan would instill fiscal discipline, increase transparency, and increase the likelihood of deposits making it into the reserve fund.

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