Flawed Rainy Day Fund Resolution Passes Assembly

Friday, May 13, 2011 at 6:27 PM by

This week Wisconsin is a step closer to enshrining poorly-designed fiscal policy in the state’s constitution. The Legislature is considering a constitutional amendment that would require the state to make contributions to a rainy day fund, and the amendment (AJR 21) cleared the Assembly Wednesday by a vote of 57 to 37, with one Democrat joining the Republicans in voting for the measure.

A rainy day fund is a great concept, and can help cushion the effects of an economic downturn. This particular rainy day fund, however, would be set up in a way to actually worsen the fiscal effects of some very deep recessions. In all but the most severe recessions, the money in this rainy day fund would be inaccessible without a two-thirds vote of the Legislature. (And it’s extremely difficult to get two-thirds of the Legislature to agree on anything, including that water is wet.) We’d have to make contributions to the rainy day fund even when the recovery was lagging.

The sponsor of the joint resolution, Rep. Travis Tranel, was motivated in part by the current budget debates. In a press release announcing the passage of the resolution, Rep. Tranel said, “Hopefully, in the future the divisive and difficult budgetary debates we are currently having will not be necessary if this common sense amendment is put in place.” But if this amendment were already in effect, a majority vote wouldn’t suffice to access the rainy day fund for the 2011-13 biennium.

A majority of legislators wouldn’t even have been able to take money out of the rainy day fund during the last biennium, when general fund revenues were in free fall. In fact, the state would have had to contribute roughly $250 million to the rainy day fund over the 2009-11 and 2011-13 biennia combined. Are these the criteria for use of a rainy day fund that we should lock into place in the Wisconsin Constitution?

If we sound exasperated, it’s in part because the whole Assembly process was rushed. The hearing was scheduled on such short notice after the resolution was introduced that only the author testified. (Keep in mind that a constitutional amendment must be passed by two consecutive legislatures and also by a statewide referendum, so rushing the process at this point doesn’t move up the date the amendment can be adopted.) The Assembly made no amendments, and didn’t address the concerns that were raised in a memo this week by the Wisconsin Council on Children and Families or in an earlier Budget Project analysis.

We’re cautiously optimistic that the Senate will take a closer look at the resolution and will grapple with the fact that the criteria that would be put into the constitution would preclude the rainy day fund from being used even during the current downpour or the 2009-10 monsoon.

Jon Peacock & Tamarine Cornelius

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