Ready for a rainy day: Utah lauded for approach to managing volatility
Ravell Call, Deseret News
In a report by the Pew Charitable Trusts published Tuesday, Utah received high marks for management of revenue volatility.
Volatility, or the risk associated with budget uncertainty, is important to those managing states budgets, according to the report, because a failure to anticipate and manage such uncertainty can lead to major problems in state finances in times of economic downturn.
"Making the choice to be prudent during times of growth is hard, but it really pays off in the long run," Pew's Brenna Erford told the Deseret News.
And that's exactly what Utah is doing, according to the report, "Building State Rainy Day Funds."
“Every three years Utah produces a comprehensive report,” the study says, “which analyzes economic changes that affect state tax revenue, the interaction between the tax base and tax rate, and policy changes that modify the tax system.”
According to Erford, Utah is one of the only states that has made such reports required under state law. “States that aren’t doing this have a lot to benefit from,” Erford said, and formalizing it with a statute makes it that much more effective.
These studies helped Utah see the need to increase the “rainy day fund” in 2009 and 2012, something that Erford thinks proves that frequent reports on volatility could greatly benefit other states that struggle with preparing for the future.
“To ensure that savings remain commensurate with observed levels of volatility,” the study's authors wrote, “this analysis positions Utah to become a leader among the states.”
But there are still things for Utah to work on, according to Erford.
While Utah impressed the researchers with mandatory studies and a focus on using forecast error to determine necessary savings, Erford is hopeful that a deposit rule like the ones in Virginia and Tennessee will also soon become statutory.
“The choices that states make now during times when revenues are growing will impact the challenges they face during a time of recession,” Erford said, concluding that, in this regard, Utah has much to be proud of.