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Democrats want to drain the state’s Rainy Day Fund to help pay for COVID costs. Here’s what that might mean.

UPDATED: Mon., April 5, 2021

The Washington Capitol building is seen on the last day of the 60-day legislative session, Thursday, March 12, 2020, in Olympia, Wash.  (Rachel La Corte)
The Washington Capitol building is seen on the last day of the 60-day legislative session, Thursday, March 12, 2020, in Olympia, Wash. (Rachel La Corte)

OLYMPIA – Both state House and Senate Democrats have released their proposed two-year budgets, and both call for draining the state’s $1.8 billion “rainy day fund” to assist in one-time pandemic-related costs.

While lawmakers have dipped into the fund in the past, it’s never had this much money in it, and it’s never been completely depleted.

Proponents of using the fund say now, more than ever, is the time to use the state’s savings for one-time COVID-19 costs. Opponents say there is no need to use all of the money because the state is getting billions more dollars in flexible federal funds.

Here’s a closer look at the logistics of using this reserve fund:

What is the rainy day fund?

Officially called the Budget Stabilization Account, the fund is the state’s savings account that lawmakers can tap when the state experiences unexpected economic conditions.

This particular iteration of the fund is somewhat new, having passed by voters just in 2007. Other reserve funds have existed in the past.

Each year, about 1% of the general state revenues is deposited into the account, which means that even if the funds are drained, it will eventually replenish itself.

Typically, the Legislature needs to approve accessing the funds by a three-fifths vote. In some cases, only a simple majorityis required, such as if the employment growth for a fiscal year is less than 1%. This is how lawmakers are justifying the decision to draw down the fund, meaning they’ll only need a majority. Because both the House and the Senate chambers are controlled by Democrats, they’ll almost certainly have the votes to do it.

It’s set up so it can only be used during significant economic events, like what the state is experiencing right now, State Treasurer Mike Pellicciotti said. It’s not meant to be a pot of money used at any time.

“It’s a good thing that it’s hard to get to,” said David Schumacher, director of the state’s Office of Financial Management.

Has it been spent before?

If the Democrats’ proposed budget passes, it will be the most the rainy day fund has been used at one time, but it has been tapped before.

After the Great Recession in 2009, the Legislature authorized the use of $400 million from the fund, leaving it with an ending balance of almost $21.4 million. In 2011, the Legislature transferred another $223 million out of the fund, leaving it with its lowest balance to date of $564,000.

After the 2015 wildfire season, the Legislature agreed to use $190.6 million in rainy day funds to pay for the cost of fighting those fires.

Before the end of the 2020 session last March, lawmakers approved using $200 million of it to aid in the COVID-19 fight.

Lawmakers have called for its usage other times. Before the pandemic hit last year, Gov. Jay Inslee suggested using it to fight homelessness statewide. Those ideas never made it into any final budget.

“Using it all this year is a significant change,” Schumacher said.

Argument for using Rainy Day fund

Democrats have said that if there was ever a rainy day, now is the time. The funds could be used for one-time costs that came about because of the COVID-19 pandemic, such as K-12 school reopening, business assistance, rental assistance or vaccine distribution.

The House budget appropriates the $1.8 billion in the fund to a new account specifically to address the effects of the COVID-19 pandemic. The money wouldn’t necessarily be used right away but would instead be ready for any one-time costs in the future.

The state’s reserves will still be there, but a new account would give lawmakers “flexibility for uncertainty in the future,” House Appropriations Chair Timm Ormsby, D-Spokane, said.

The Senate budget would also appropriate the $1.8 billion from the fund but would likely use it immediately for one-time costs and hold onto more of the federal stimulus funds.

Not every single dollar of it has to be used right now, Schumacher said, and if the state doesn’t end up using it all, it can go back into reserves, he said.

“Now’s the time to use it,” Schumacher said.

Both plans would leave the state with about $544 million left in the rainy day fund by 2023 and $1.1 billion by 2025.

Pellicciotti, a Democrat, said it’s important to him that the Legislature commits to a plan to replenish the reserve funds once they use them.

“I would have concerns if the proposed budgets weren’t holding onto significant financial reserves,” he said.

Argument against using Rainy Day fund

Earlier in the pandemic, Republicans have suggested draining the fund, but now that the state is receiving money from the federal stimulus package, many say tapping the state’s reserves is not needed.

The state is receiving at least $4 billion mostly flexible funds from the federal government.

In a news conference last week, Sen. Lynda Wilson, lead Republican on the Ways and Means Committee, said the state should hold onto its reserves and focus on spending federal money first.

“We still don’t know what this pandemic can do,” she said. “We need to be prepared for that.”

House Republican budget lead Drew Stokesbary said both House and Senate Democrats’ budgets use the rainy day funds “irresponsibly.”

He called the Senate approach, which appropriates it to the general fund, “short-sighted.” While he said he appreciates that the House plan doesn’t spend the reserves right away, Stokesbary criticized Democrats for moving it into a separate account in order to bypass the requirement for a three-fifths vote.

Other states’ use of savings during pandemic

When the pandemic hit more than a year ago, many states were looking at budget deficits, and many turned to their state’s reserves to assist.

According to the National Conference of State Legislatures, almost every state has used at least some of their reserves since the pandemic began. Some states, like New Jersey and Nevada, drained their funds last year to pay for budget shortfalls.

Washington was in a similar situation, looking at an $8.8 billion budget deficit last March, but lawmakers held off on using all of their funds.

With rebounding state tax collections having closed a project budget shortfall, a lot has changed since then. But Schumacher said it just puts the state back at “ground zero.” There are likely still a number of unexpected costs for the next few years, he said, adding the state was lucky it had the reserves.

“It’s a good thing to have,” Schumacher said. “It’s worked just the way it’s supposed to.”

Laurel Demkovich's reporting for The Spokesman-Review is funded in part by Report for America and by members of the Spokane community. This story can be republished by other organizations for free under a Creative Commons license. For more information on this, please contact our newspaper’s managing editor.

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