Rebuilding the state’s reserve or rainy day fund is something Gov. Nathan Deal likes to crow about.
In his 2013 State of the State address, the governor bragged that the rainy day fund had grown 226 percent since he took office in 2011.
His staffers were all a-twitter about it then on, um, social media.
The news this year, Deal said in his annual speech, is even better. The rainy day fund has grown a whopping 643 percent.
It’s hard for most of us to get our minds around those kind of percentages. We knew it was big when the Dow Jones closed up 7.52 percent for 2014. When we heard the governor say the rainy day fund has soared 643 percent, our heads and the unflappable AJC Truth-0-Meter started spinning.
First, a little background.
Georgia, like other states, has a "rainy day" fund to carry it through tough economic times. The fund had $1.5 billion, or enough money to operate the state for 30 days, on July 1, 2007.
But when the Great Recession hit, hurting Georgia harder than many states, the rainy day fund was drawn down to balance the 2008, 2009 and 2010 state budgets. By the end of the 2009 fiscal year, the state’s reserves had dwindled to $104 million.
Most states were in the same boat.
State rainy day funds collectively fell from $25.9 billion in FY 2007 to $10.4 billion in FY 2010, although they had bounced back to about $21.6 billion by last fall, according to the National Conference of State Legislatures. (Note Alaska and Texas aren’t counted in those tallies because their large reserves skew the state averages.)
"Since the Great Recession, states have done a relatively good job of rebuilding their reserves,’ said Arturo Perez, a financial analyst with NCSL.
By the end of the current fiscal year, most states will have fund balances averaging about 5.8 percent of their revenues, Alaska and Texas not included, Perez said. At the low point, the average had dropped to 1.8 percent, he said.
Georgia’s was at 4.5 percent at the end of 2014, Perez said.
Now to check Deal’s calculations against state records.
Georgia’s rainy day fund had $116,021,961 before Deal took office in 2011 and reached $377,971,440 by June 30, 2012, earning the governor a True rating from PolitiFact for his statement in the State of the State in January 2013.
By June 30, 2014, the end of the last fiscal year, the fund had $862,835,447. Deal told lawmakers in his State of the State this month that being conservative had paid off.
He said the 2014 budget was based on a conservative estimate that state revenues would increase 3.4 percent.
Revenues were actually up 4.8 percent, and the difference went to the rainy day fund, the governor said.
"Every budget cycle since I have been governor, we have added to that fund so that it has increased by 643 percent since I took office," Deal said.
His numbers add up. The rainy day fund has increased 643 percent since Fiscal Year 2010, the year before he took office.
What’s the right amount for tough times?
The question that likely worries every family has been debated by officials at all levels of government.
Rating agencies recommended in the early 1980s that states set aside 3 percent to 5 percent of their revenues in reserves for economic tough times. The Government Finance Officers Association more recently has suggested that states have 10 percent to 15 percent or two months’ worth of operating money on hand.
Alan Essig, executive director of the left-leaning Georgia Budget & Policy Institute, said state officials indicated they wanted 10 percent to 15 percent in reserves when the state raised the cap to 15 percent under former Gov. Sonny Perdue, he said.
"If that’s the case, Georgia has some work to do before its reserves exceed 10 percent," Essig said. "Reserves equal to 10 to 15 percent would be somewhere between $2 billion and $3 billion."
The other way to measure reserves to project how many days they could be used for government operations, and the current money would cover about 16 days, he said.
In summary, the state had $1.5 billion in its rainy day fund and relied on it to balance the state budget through the toughest years of the Great Recession.
The fund is not where it once was nor is it where it needs to be so the state is ready for the next economic downturn. But it is exactly where Deal said it is -- up 643 percent since he took office.
We rate Deal’s statement True.