Division of finance data indicate Utah’s rainy day funds register at record levels

By Sun Advocate

Utah’s financial situation has improved significantly due to an expanding economy that has generated major increases in state tax revenue.
Utah’s rainy day funds – officially known as budget reserve accounts – are presently at all-time highs and have reached statutory limits.
According to data released by the Utah Division of Finance, the state’s general fund budget reserve account has a $132.1 million balance.
In addition, Utah’s education budget reserve account has $122.9 million for a total of $254,925,000.
State statute allows the budget reserve accounts to retain a maximum of 6 percent of general and education fund appropriations.
Cities are allowed to have reserves equaling 18 percent of general revenues, while counties are permitted to have 20 percent in reserve funds.
School districts, on the other hand, are allowed to have 5 percent in reserve.
The lower limits for the state and school districts may be attributable to the fact that there is significant overlap between the budgets, indicated the Utah Taxpayers Association.
Financial reserves at the school district level lessen the need for the state to have rainy day funds and vice versa.
In 2002, Utah had bled the state’s rainy day revenues down to $19.5 million from the previous high of $120.3 million in 2001.
Utah unofficially has a working rainy day fund, explained the independent public policy organization.
A working rainy day fund consists of cash revenues, as opposed to bonds, that are used for capital projects.
In 2007, the Utah Legislature intends to earmark approximately $708 million in cash for capital projects like roads and buildings, pointed out the taxpayers association.
Normally, state and local governments across the nation rely on bonds to subsidize capital projects.
But Utah has traditionally relied heavily on cash to fund capital projects.
In addition to avoiding interest expenses, allocating cash to pay for capital projects allows Utah to manage the state’s budget more effectively in the event projected revenues fail to materialize.
The monies are frequently called working rainy day funds because the revenues are actually being “put to work” to cover the construction costs associated with capital projects instead of sitting in a bank account collecting interest, noted the independent public policy organization.
And the funds can be transferred from capital projects to cover ongoing operating general expenses if the state’s anticipated revenues register at lower levels than initially expected.
If cash is transferred from capital projects, the related costs are funded with bonds or construction is delayed.
Diverting cash, particularly ongoing revenues, to capital projects has the added advantage of slowing the growth of operating expenditures.
But even if ongoing expenses are increased when buildings or roads are constructed, the expenditures would be higher if the ongoing revenues had initially been used exclusively for ongoing expenditures instead of capital.
During the last recession when revenues stopped growing, Utah relied on the state’s rainy day revenues and the working funds to balance the budget.
Although the state raised taxes in the last recession, individual income assessment increases were small compared to the hikes of 1987, which would be the equivalent of hundreds of millions of dollars in Utah’s current economy, concluded the independent public policy organization.