Louisiana Voters Protect State Rainy Day Fund


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Good news out of Louisiana this week. Voters defeated Amendment 1, one of four constitutional amendments on the Oct. 24 statewide primary ballot. The proposal would have put a $500 million dollar cap on the state’s Rainy Day Fund, the savings account the state relies on in the event of an unexpected drop in revenues. The amendment would have also created a transportation fund to capture any mineral revenue coming in above the new cap.

Steve Spires of the Louisiana Budget Project sums up the situation in his recent post:

“The goal of this amendment is laudable: to address Louisiana’s chronic backlog of transportation needs. Unfortunately, it would do so by weakening the state’s rainy-day savings account, which would hurt the state’s ability to react to future financial downturns and put vital state services at risk for damaging cuts.”

Even without the amendment, the fund is already subject to strict rules such as the condition that the legislature can only use one-third of its contents in any given year. A $500 million dollar cap would have limited rainy day fund infusions to just $167 million per year. In the context of Louisiana’s roughly $8 billion budget, Amendment 1 would have rendered the fund unable to cover anything beyond a 2.1 percent decline in revenues. This would have been an inadequate cushion to protect Louisiana residents from cuts to critical public services during the next economic downturn.

Size restrictions on rainy day funds limit states’ ability to grow reserves in line with their budgets. In our Primer on State Rainy Day Funds, ITEP warns against such overly restrictive caps. Louisiana voters made the right call this week by forcing lawmakers to have a real discussion about road funding, rather than weakening the state’s rainy day fund as part of a deficient package that wouldn’t have solved the problem.

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