After building up state rainy day funds in recent years, a combination of factors has contributed to a drop in reserve capacity in fiscal year 2025. While many states still have ample savings to withstand federal funding cuts and potentially weakening revenues, calculations from the Pew Charitable Trusts indicate that “the median state could run on just its rainy-day funds for 46.9 days, down from the record high of 53.2 days in fiscal 2024.”

The comprehensive article makes it clear that the decline should be viewed in perspective. “Most states still have stronger rainy day funds than they did before the pandemic,” write Justin Theal and Page Forrest in an October 15 state fiscal health article.

But the situation bears watching, both due to federal funding uncertainty, spending pressures and potentially weakening tax projections.

A constant theme throughout the analysis is the dramatic variation among states in the size of their reserves as well as their needs and fiscal condition. At the extreme, Wyoming could sustain its spending for 320.2 days of reserves while New Jersey’s reserves are currently at zero. [Note that the article link, above, provides an interactive map with a wide range of information on the status of each state in terms of the number of days of spending covered. It also provides readers with the ability to look at rainy day funds alone or combined with balances at fiscal year’s end.] 

The article notes that ending balances have been particularly vulnerable of late, with the reduction of “leftover budget dollars” dropping “at the fastest rate since the Great Recession.” 

Combining rainy day reserves with end-fund balances, “overall fiscal cushions. . . are declining at a rapid pace, leaving states with fewer resources to address widespread current and projected budget imbalances,” according to the authors, who nicely describe the difference between rainy day funds, which provide dedicated savings accounts and ending balances, which are more likely to fluctuate from year to year and can be based on “a range of factors”. In describing end balances, the article notes that for three years in a row, states have drawn down balances, with the $48.2 billion decline in fiscal 2025 representing a 59 percent drop from fiscal 2024.

In fact, 40 states drew down their end-fund balances in fiscal 2025. This can represent “potential signals of rising fiscal stress,” and signal a potential structural imbalance that could be problematic. But reducing the end fund balance can also result from a desire to “pay down debt or fund one-time projects.”

The Pew analysis also provides readers with a taste of rainy-day fund policy and management. For example, it explains that states with extremely large reserves – like Wyoming – tend to have more volatile revenues and it also gives examples of “deposit rules” that states create to both protect the money in reserve and add to reserves when tax revenue or other unusual fiscal gains suggest that saving is better than spending.

It also provides a reminder that using rainy day funds when faced with a change in fiscal circumstances is, after all, the point of having them. They can both provide a “temporary bridge, giving policymakers time to assess their options,” and can serve the “traditional purpose of helping to close shortfalls during economic downturns.”

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