Building Stronger Budget Reserves

The Minnesota Budget Project supports incrementally building state budget reserves until they are adequate to sustain essential services during an economic slowdown.

Issue Overview

Budget reserves, or “rainy day funds," are necessary for Minnesota to respond to the inevitable ups and downs in our economy. Adequate budget reserves soften the shock of budget shortfalls and enable the state to better meet the needs of Minnesotans during tough times. Instead of making quick and drastic choices to balance the state’s budget, reserves give policymakers time to respond to deficits in a thoughtful and deliberative way.

Maintaining a healthy level of reserves and planning for rebuilding them are also indications of sound fiscal management that can help the state earn a strong bond rating. High bond ratings allow the state to borrow funds to build roads and other infrastructure at a lower cost.

In January 2014, Minnesota Management and Budget recommended that the state maintain reserves equal to 4.9 percent of the state’s two-year general fund budget, which would be $1.9 billion for the FY 2014-15 biennium. Reserves of this size would make the state well prepared to absorb the shock of 95 percent of future economic downturns. 

As of the February 2014 Economic Forecast, Minnesota’s reserve was $661 million, which combined with the state's cash flow account of $350 million was only a little more than half the recommended amount.

Status

Policymakers added $150 million to the budget reserve in the 2014 Legislative Session as part of House File 1777. This legislation also requires that Minnesota Management and Budget set a recommended reserve level each year, and requires up to one-third of any positive balance in each November's budget forecast go to the budget reserve until it reaches MMB’s recommended amount.

A similar provision was originally found in Senate File 2250 (author Senator Rod Skoe) and House File 3170 (author Representative Ann Lenczewski).

More Information

Staff contact: Clark Biegler, Policy Analyst, 651-757-3071

 

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