Georgia is one of seven states (others include Delaware, Missouri, Maryland, North Carolina, Utah, and Virginia) currently rated as AAA (Triple A) by all three major bond rating agencies. The Triple A bond rating Georgia received is the highest rating a state can have and allows Georgia to borrow money at the most competitive rates available.
The rating can be influenced by the amount of debt a state holds, a state’s long-term financial management practices, the ability and willingness to repay debt on a timely basis and a state’s backup plan to meet its financial obligations.
One of these backup plans is a reserve fund or “rainy day” fund. Every Triple A state has a rainy day fund although they may differ on how they set criteria for deposit/withdrawal and how they are established (statutory or constitutionally).
State methods for rainy day funds
Most states use some or all of their surpluses to build their rainy day funds. By statute, Georgia’s rainy day funds cannot exceed 10 percent of the net revenues of the preceding fiscal year.
Other AAA rated states maintain their rainy day funds at a minimum of 5 percent of prior year’s revenues. Delaware, Maryland and North Carolina set their percentage at 5 percent while Utah maintains a policy of 6 percent by combining its general and uniform school funds. Virginia is formula driven but caps out at 10 percent and Missouri maintains its reserves at 7.5 percent of the prior year’s general revenue collections.
Most states require that some condition (budget deficit, revenue shortfall, natural disasters or a decline in personal income) exist before it can be accessed. Some states set a limit on the amount of the fund that can be accessed at any one time. In Georgia, the governor may transfer funds in excess of 4 percent of net revenue collections for appropriation. Anything below 4 percent of revenue collections can only be accessed if the state does not collect enough in revenues to meet the current budget.
Rainy day reserve balances
In Georgia, the rainy day fund began the fiscal year with approximately $792 million. Preliminary revenue collection numbers for the fiscal year that ended on June 30 indicate that the rainy day fund will rise to about $1.39 billion. Of this $188 million will be used to fund K-12 growth in the amended budget. The remaining $1.2 billion is about 7.25 percent of net revenue collections.
The first table below is end of FY07 rainy day fund estimates along with state revenues from the National Conference of State Legislatures.
Comparison to other Southeastern states
A majority of the states rated as AAA by all three major bond rating companies are located in the southeast (Georgia, North Carolina, Delaware and Virginia). This is interesting because none of the wealthy Northern states are represented among the seven AAA states. Other Southeastern states are also ranked pretty high. The second table is a breakdown of rainy day funds for all Southeastern states besides Georgia.
What’s best for Georgia?
Georgia requires about $1.8 billion monthly to keep services operative. A reserve of 8 percent or $1.8 billion seems reasonable but 10 percent or $2.2 billion would certainly not be excessive.
Visit the Legislature’s home page at www.legis.state.ga.us
To view the FY08 budget in its entirety:
www.senate.ga.gov - Tab - Budget Reports
I want to hear from you.
I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
Or call toll-free
1-800-367-3334
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Reidsville: (912) 557-3811
STATE--FY07 end of year reserve fund estimates--FY07 state revenues
Delaware--$175.4 million--$3.3 billion
Missouri--$533.7 million--$7.4 billion
Maryland--$1,389.6 billion--$12.9 billion
North Carolina--$636.6 million--$18.1 billion
Utah--$300 million--$4.6 billion
Virginia--$1.112 billion--$15.5 billion
Georgia--$1.39 billion--$17.5 billion
*Utah Governor’s Office of Planning and Budget figures are updated from an original estimate of $196 million
Southern State--State rating by Standards and Poor’s--% of revenue for rainy day fund
Alabama--AA--Education reserve only
Florida--AAA--5% of net general revenue fund
Kentucky--AA--5% of net general revenue fund
Mississippi--AA--Specific dollar amounts are given
N. Carolina--AAA--5% of net general revenue fund
S. Carolina--AA+--3% of net general revenue fund
Tennessee--AA+--10% of state tax revenue growth
Virginia--AAA--Formula based
W. Virginia--AA---50% of operating surplus, 10% of revenue
