On March 3, the National Association of State Budget Officers (NASBO) released an important new report by Kathryn White titled 10 Facts to Know about Rainy Day Funds. 

As she writes, “Despite most states increasing rainy day funds in fiscal 2025, the median rainy day fund balance as a percentage of general fund spending ticked down for the first time since the Great Recession, declining from an all-time high of 14.9 percent in fiscal 2024 to 13.1 percent in fiscal 2025. This decline is mainly due to general fund spending growing at a faster pace than the rainy day fund balance for a majority of states and does not reflect widespread use of rainy day funds by states. 

“It should also be noted, with spending levels in fiscal 2025 still impacted by heightened one-time expenditures, the median rainy day fund balance would be greater if measured as a percentage of ongoing expenditures.”

Her ten facts include the following:

• “Most states expect to increase their rainy day fund balance this year.”

• “Rainy day funds have more than doubled in nominal dollars since fiscal 2019.”

• “A decrease in a state’s rainy day fund balance does not always signal fiscal distress or a response to a budget gap.” (In fact, only eight states with declines in fiscal 2025 indicated that they were using the rainy day fund as a strategy to manage their budgets that year.)

• Rainy day funds are an important budget stabilization tool typically used in conjunction with other budget management strategies.

• Rany day funds are one-time resources

• All 50 states report having a rainy day fund.

• Some states have multiple rainy day funds with different restrictions and serving distinct purposes.

• The target size of a state’s rainy day fund varies due to factors such as revenue volatility and other reserves available

• Rainy day funds are typically more restricted concerning how (and when) they can be used compared to general fund ending balances.

• Recent declines in total balance levels primarily reflect states spending down their general fund ending balances. (Note: NASBO calculates total balances as the sum of rainy day fund balances and general fund ending balances).

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