In May of 2020, when Ohio had been plunged into recession by the COVID-19 pandemic, state budget analysts were wringing their hands trying to make ends meet in the wake of the worst fiscal crisis since the Great Recession.
Gov. Mike DeWine released a budget plan that month that cut state spending by $775 million dollars, with much of that money coming from state education spending, a sector already reeling from the COVID recession. This all happened while the state budget stabilization fund (often called the “rainy day fund”) sat untapped, $2.7 billion sitting in a state account waiting to be used.
The justification for not using budget stabilization funds, funds saved during strong economic periods to keep the budget going during economic downturns, was that “The ‘rain’ is not a passing spring shower — it could be a long, cold, lingering storm, and we should not use the fund until it is necessary.” Presumably we would need these funds down the road, so we should cut education and health spending now so we can pay for it in the future.
When DeWine released his 2021-2023 budget on Monday, though, plans for the use of the budget stabilization fund over the next two years were made public. The goal for the end of fiscal year 2022? $2.7 billion in the fund. The goal for the end of fiscal year 2023? $2.7 billion in the fund. The same as it was in May of 2020.
2020 hasn’t been as bad for state revenues as projected. It turns out that a recession that impacts high-income people less than low-income people isn’t all that bad for states that collect significant income tax. So best case scenario is that we were conservative, we pinned our ears back in 2020, and now we’re going to have this budget stabilization fund ready for the next recession when it comes along.
But tightening our belt when the economy is still down could backfire. Economists cite state and local spending as a top priority of softening the recession, yet stimulus bills have been held up because of resistance to supporting state governments.
Funding state government is in some ways the most straightforward stimulus there is. We don’t need a complicated system of bank loans like the Paycheck Protection Program or the infrastructure to send a check to every household: The federal government already funds state governments every year, and states already have budget items ready to fund.
And as both children and adults return to school this year, our K-12 and higher education institutions are going to need all the resources they can get to reestablish some sense of normalcy. A majority of Ohio economists think in-person schooling will be a boon to Ohio’s economy, meaning this investment could help the economy as a whole recover.
I hope that we were just being conservative and I hope our leaders are making the right decision when it comes to the budget stabilization fund. But looking at these numbers, understanding the recession and fiscal crisis we just went through, and seeing that we spent absolutely none of the money we saved for this moment are hard truths to reconcile. If we don’t use this fund in a year like 2020, when exactly are we supposed to use it?