North Carolina’s once top-ranked rainy-day fund has slipped in both balance and national standing, falling from $4.75 billion in 2022 to $3.62 billion as of October, according to new data from the Pew Research Center.
In 2022, North Carolina was recognized by the Pew Research Center as having one of the best rainy-day funds or savings reserves in the country. At that time, the state’s savings reserve was projected to reach $4.75 billion by the end of the biennium.
The balance has remained relatively stable, including through the end of 2024, leaving the state with 59.3 days’ worth of funds it could solely run on from that reserve.
But as of Oct. 20, the fund’s balance has fallen to $3.62 billion, or 41.5 days of funding. North Carolina has also fallen in Pew’s rankings, making it one of 13 states that have seen declines in their savings reserves.
The think tank cites the now-depleted federal pandemic aid and higher-than-forecasted tax collections as two possible reasons for the drop in funds.
one piece of the puzzle
State Treasurer Brad Briner isn’t overly concerned with the dip in the savings reserves, noting that it’s just “one piece of the puzzle” when it comes to the strength of the state’s reserves.
“We have got $3.7 billion more than that in other reserves,” he told CJ in a phone interview. “So, the total that I see is $7.3 billion of reserved cash for the state, and so I think you want to look at the total over time.”
Other reserves include the Stabilization and Inflation Reserve, Medicaid Contingency Reserve, and the Economic Development Reserve.
Briner said that even though the Savings Reserve is down, the state has been at that level before.
Taking a look at the number of days of cash on hand, he said, having too much could indicate a different problem.
“It means you’re not being productive with your cash, or you’re overtaxing your people, or you have too many bonds outstanding, or, as a kind of CFO, too much cash on hand is a real failure,” the treasurer stated. “You’ve got to balance that, so the flip side of the balance sheet is debt. How much debt do we have? Our debt has fallen dramatically over the years and continues to fall.”
He pointed out the $170 million his office had found earlier this year in unspent and unallocated funds as part of a detailed review of the state’s accounts and how they plan to pay off state debt.
“So, in one sense, we’re reducing our cash on hand, but it’s a really effective use of cash, retiring state debt,” Briner said.
The treasurer added that, unlike states with a lot of debt, North Carolina isn’t borrowing money and paying significant amounts of interest on it to inflate its cash on hand. North Carolina is also growing, as opposed to a lot of other states, and that growth, he says, is an answer to a lot of problems.
Can we weather a storm?
But even though the state is in a good place, Briner said there is one question that everyone needs to ask, but can’t answer with the delays the state has experienced with receiving funding from the Federal Emergency Management Agency (FEMA) and the inevitability of a future disaster which is: What is the appropriate size of the state’s rainy day fund for actual “rainy days” like a major disaster like a hurricane?
He told CJ that there will probably be enough money on hand to bridge the gap, but that he couldn’t answer that, noting that it all depends on how quickly FEMA is or isn’t in delivering funding.
Briner did say, however, that the state could weather another hit like Helene.
“If Helene cost $60 billion and maybe half of that is the (federal) government in some way or maybe a bit more, maybe 2/3 of that is the (federal) government and the match is 10%, then you would need to feel like it would come up with $4 billion over time and we’ve got more than that in reserves,” he said. “Whether it’s all appropriate for this use or not is a different question, but I think we could handle one of those. We would need some time to refill it and recover, of course. We could not handle two of those right back-to-back without tapping the bond markets.”
The treasurer said that while there are no plans to do that, it is another lever that they can pull if the state gets in a pinch. The state’s debt capacity is another $10 billion, as indicated by the debt affordability study.
Speaking of the bond market, Briner pointed out the high ratings that Moody’s and S&P, recently gave the state as another indication of the state’s financial strength.
“North Carolina continues to be an incredibly well-run state financially, and that’s been true for a long, long time, and it will be true for a long, long time,” he told CJ.
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