Well-designed rainy day fund policies and timely use can protect against downgrades, according to Pew Trusts. The foundation's research has found that even in states with the agencies' highest rating (triple-A), policymakers often are unsure about how best to manage their rainy day funds to earn or keep high credit ratings. As a result, some state officials are reluctant to tap reserves even during recessions for fear of a ratings downgrade.
With that in mind, Pew recommends that state policymakers:
Design rainy day funds with clear, objective goals that policymakers can refer to regardless of changes in governors, legislatures, and business cycles.
Structure rainy day funds to be in line with the economy, so that deposits, withdrawals, and savings targets are informed by the state's...