Why States Save: Using Evidence to Inform How Large Rainy Day Funds Should Grow

As revenue and spending pressures shift along with the booms and busts of the economy, states stand to benefit from the additional flexibility provided by robust rainy day funds to smooth over unexpected bumps in the road. But absent a clear purpose for saving, some states also find it extremely difficult to set a meaningful savings target, which can confound their efforts to manage the budgetary ups and downs of economic activity.This report examines how state policymakers should design their funds to help inform an optimal savings target. It analyzes existing guidelines -- set in statutory or constitutional language -- around the management of rainy day funds and offers key questions to consider while crafting such guidelines