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Rainy-day funds grow: State decisions and strategies

Just a few days ago, the New York Times reported on how state governments are going to be forced to make tough decisions regarding their budgets. Some states, like Maryland, have actually increased their income tax on high earners in order “to preserve services and spending on its well-regarded schools.” Other states have taken a different approach, like Kansas, which has cut income taxes in order to try and boost its economy. These types of decisions have come out of states that have different political affiliations. Maryland has a Democrat-controlled state house, while Kansas is controlled by Republicans. As we move forward, it will be interesting to see how states among the parties will handle these budgetary decisions.
Another way in which states can move forward with tough budget decisions is to look at using rainy-day funds. These funds dried up during the heart of the recession a little more than four years ago, when the market crashed and the U.S. (along with most of the world) was left with significantly less tax revenue and budgets in the red. States across the country raced to slash budgets, lay off workers, and cut several programs, many of which benefited low-income families. Fortunately, over the past few cycles, conditions have improved in some states, and while everything isn’t A-okay, those states are sitting on replenished rainy-day funds. The question now is: What do states do with that money?

See the images below for a graphic representation of the states' improved rainy-day funds.
Analyst’s Take
As vendors in all areas look to do business with states moving forward, they should consider looking at states that have large rainy-day funds and are looking to bring back previously-cut services. Additionally, looking toward states with high credit ratings is likely safer in that projects are less likely to be stalled or put on hold the minute the economy experiences a hiccup. Moving forward, Deltek will be analyzing the overall market and providing vendors with information to help determine which states have the most-promising spending climate.
On the other side of the coin, states that opt not to restore cut services and hiring may seek more technology to do the work previously done by employees. Using technology to their advantage might be a way to use what funding is available more efficiently. Of course, this is not always the case, as many agencies with available funds also purchase IT-related products, but it will be interesting to see how states that opt to keep cuts intact move ahead with new or improved technology.
Subscribers can click here for the entire article, with expanded analysis of the impact of growing state rainy-day funds.


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