Does Oregon Need a Rainy Day Fund? Like a Fish Needs a Bicycle
17 Pages Posted: 16 Dec 2004
Date Written: December 7, 2004
Oregon has one of the biggest cyclical budget problems in the country, if not the biggest. Without a rainy day fund, Oregon's state government would have a budget shortfall ten years out of twenty; two of which would be equal to or greater than twenty percent of annual spending. Oregon could substantially reduce the frequency of unredressed budget shortfalls and their magnitude with a sufficiently large cash balance. The problem is that Oregon cannot afford a rainy day fund big enough to make a significant difference. It seems, in fact, that any state that really needs a rainy day fund probably cannot afford one and that any state that can afford a rainy day fund probably does not need one. Analyses that focus on averages or on individual states with stable economies and income inelastic tax bases conceal this reality. States with very volatile revenue flows should consider counter cyclical borrowing as an alternative to building large cash balances.
Keywords: Rainy Day Funds, Oregon, cash balances, inventory model
JEL Classification: H71, H72, H74
Suggested Citation: Suggested Citation