Rainy day funds: Running for cover.

• Position: Statestats - Brief Article

During the economic boom of the 1990s, most states bolstered budget reserves, especially their rainy day funds.

States increased these funds from $2.7 billion in 1991 to $25.3 billion in 2001. Rainy day funds are money saved when state finances are healthy for use when the economy takes a downturn. Now the recession is here and states are eyeing these funds and other reserves to deal with budget shortfalls. Nearly all states are facing budget deficits that must be addressed before the end of FY 2002.

By mid-February, 15 states and the District of Columbia already had tapped reserve funds to help balance FY 2002 budgets. Another 10 states were considering doing so. New York has used $1.1 billion of its rainy day fund. Massachusetts has used $722 million. Kentucky used half of its rainy day fund and some tobacco settlement money.

RELATED ARTICLE: TAPPING TOBACCO FUNDS

At least eight states have or will consider using tobacco settlement funds to balance their budgets:

Idaho

Indiana

Kentucky

Mississippi

Missouri

Ohio

Tennessee

Wisconsin

RAINY DAY PROS AND CONS

* Promotes stability by allowing state officials temporarily to avoid ad hoc cuts or tax increases to avoid a budget shortfall.

ON THE POSITIVE SIDE, A RAINY DAY FUND:

* Buys time for state officials to make informed decisions about longer term solutions...