With tighter state budget conditions, heightened economic uncertainty, and declining federal funding, one topic getting increased attention lately is rainy day funds. After experiencing significant growth earlier this decade, rainy day funds stand at near all-time highs. Given states are expecting more limited resources and facing budget pressures, what is the outlook for rainy day funds? What factors might states consider when deciding whether to use these funds? Do all states have a rainy day fund and how do fund sizes vary by state? And how do rainy day funds differ from general fund ending balances? Read on to learn more about recent trends in rainy day funds, how these funds can be used, and more.
Fact #1 – Most states expect to increase their rainy day fund balance this year.
According to NASBO’s Fall 2025 Fiscal Survey, 32 states are projecting increases in their rainy day fund balance (in nominal dollars) in fiscal 2026 based on enacted budgets, while nine states reported no change and six states are projecting declines. This followed fiscal 2025, when 33 states reported increases to their rainy day funds, 14 states recorded decreases, and three states reported no change.
Despite most states increasing rainy day funds in fiscal 2025, the median rainy day fund balance as a percentage of general fund spending ticked down for the first time since the Great Recession, declining from an all-time high of 14.9 percent in fiscal 2024 to 13.1 percent in fiscal 2025. This decline is mainly due to general fund spending growing at a faster pace than the rainy day fund balance for a majority of states and does not reflect widespread use of rainy day funds by states. It should also be noted, with spending levels in fiscal 2025 still impacted by heightened one-time expenditures, the median rainy day fund balance would be greater if measured as a percentage of ongoing expenditures.
According to enacted budgets for fiscal 2026, the median rainy day fund balance as a percentage of spending is expected to tick back up to 14.4 percent. Looking ahead to fiscal 2027, some governors’ budgets plan for additional rainy day fund deposits or call for maintaining reserves at current levels, while others are planning to withdraw from their rainy day funds to help stabilize their budgets or to support one-time strategic investments.
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NASBO Data Note: States vary in their methodologies for projecting future rainy day fund balances, and a few states do not estimate balance amounts for the current and/or future fiscal year. Additionally, preliminary, estimated, and projected data on rainy day funds (and state fiscal information) can and often do change in subsequent survey editions as actual data are reported. Therefore, comparing actual rainy day fund balances to estimated or projected amounts should be done with caution.
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Fact #2 – Rainy day funds have more than doubled in nominal dollars since fiscal 2019.
In fiscal 2019, states in the main were regarded as well-prepared for the next recession with record-high reserves. Rainy day fund levels in the aggregate at that time were at then-all-time-highs by every measure – in nominal dollars ($79.1 billion), total rainy day funds as a percentage of total general fund spending (9.1 percent), and the median balance as a percentage of general fund spending (7.9 percent). Six years later, rainy day funds at the end of fiscal 2025 stood at $174.2 billion – more than double their fiscal 2019 amount in nominal dollars – or 13.3 percent measured as a percentage of total general fund spending. Looking at state-by-state historical data, all but two states ended fiscal 2025 with a larger rainy day fund balance than they held in fiscal 2019 (in nominal dollars) and 39 states held larger balances measured as a percentage of general fund spending in fiscal 2025 compared to fiscal 2019.
Fact #3 – A decrease in a state’s rainy day fund balance does not always signal fiscal stress or a response to a budget gap.
Fourteen states recorded decreases to their rainy day fund balances in fiscal 2025 and six states are projecting declines for fiscal 2026, according to NASBO’s Fall 2025 Fiscal Survey. However, only eight states with declines in fiscal 2025 indicated using the rainy day fund as a strategy to help manage budgets for fiscal 2025 in the Fiscal Survey, while two states with declines in fiscal 2026 reported using the rainy day fund as a strategy in their enacted budgets for fiscal 2026. In some instances, the projected reductions in reserve balances may be attributable to other factors. Given how large reserves have become in many states, some policymakers have directed a portion of the rainy day fund to one-time strategic investments (like capital projects). Moreover, some states have had to adjust their balance amounts in recent years to comply with legal maximum limits that are tied to general fund spending or revenue levels.
In other cases, a decrease in the fund balance may be the result of that state including temporary reserves in prior-year figures (affecting the baseline amount in the calculation). States that use a broader definition of rainy day fund when reporting in NASBO’s Fiscal Survey, such as by including less restricted operating reserves stored in their ending balances, are also more likely to report fluctuations that may occur outside of a true fiscal crisis.
Fact #4 – Rainy day funds are an important budget stabilization tool typically used in conjunction with other budget management strategies.
Rainy day funds, also known as budget stabilization funds, serve as states’ savings accounts and may be used to supplement general fund spending during an economic downturn or other event triggering a shortfall, if the specific restrictions on the use of the fund(s) are met. These funds play an important role in mitigating disruptions to services when revenues come in below expectations and in helping states respond to other unforeseen circumstances. They are one of a number of “tools in the toolbox” of budget management strategies available to a state facing a budget gap, along with spending reductions, other fund transfers, personnel actions, revenue increases, and other actions. Rarely do states rely on rainy day funds alone to address a shortfall.
For example, during and after the Great Recession in fiscal 2009, fiscal 2010 and fiscal 2011, many states used their rainy day funds to help manage budgets and reduce budget gaps, as reported in NASBO’s Fall 2009 and Fall 2010 Fiscal Surveys. Every state that reported using its rainy day fund during that time period also indicated using at least one other budget management strategy (usually more than one). Similarly, virtually all states that reported in NASBO’s Fall 2020 Fiscal Survey using the rainy day fund in fiscal 2020 and/or fiscal 2021 to manage their budgets around the time of the COVID-19 pandemic recession also indicated the use of other budget management strategies as well.
While rainy day funds can serve as a critical tool for states responding to an economic downturn, states never operate solely on these funds. Even in a severe recession, tax collections and other revenues still flow into a state’s coffers but at a slower pace below forecast. Rainy day funds help to supplement these lower-than-expected revenues on a temporary basis to mitigate service disruptions.
Fact #5 – Rainy day funds are one-time resources.
Rainy day funds represent accumulated savings built up over time primarily through automatic deposit rules and/or discretionary appropriations, oftentimes with states directing a portion of surplus funds or above-normal revenue growth to rainy day funds. Therefore, these funds consist largely of non-recurring revenues and are viewed as one-time resources. As such, rainy day funds are intended to help states mitigate service disruptions during a temporary budget shortfall and cannot solve for ongoing funding cuts or a structural budget gap. Sometimes, rainy day funds can serve as a short-term bridge to balance a budget until the effects of ongoing spending reductions and/or revenue increases fully kick in. Many states also have rules in place governing how rainy day funds are to be replenished within a given time frame following a withdrawal.
Fact #6 – All 50 states report having a rainy day fund.
Today, all states report having at least one rainy day fund, but this was not always the case. Many states first established a rainy day fund in the early 1980s after wrestling with the budgetary challenges of successive recessions between 1980 and the end of 1982. In NASBO’s 1987 edition of Budget Processes in the States, 35 states reported having some type of budget stabilization fund established. That number rose to 45 states, based on data reported in the 1999 edition of Budget Processes in the States. More than two decades later, the 2021 edition of that same publication for the first time reported that all 50 states had at least one rainy day fund established. The policies and restrictions that govern these funds vary by state.
Fact #7 – Some states have multiple rainy day funds with different restrictions and serving distinct purposes.
A number of states maintain multiple rainy day funds. In addition to a general reserve or budget stabilization fund, some states also have a reserve dedicated to K-12 education funding, while several states have contingency funds set aside for Medicaid expenditures, which can be hard to predict for a given year. A couple of states also have established reserve funds specifically for higher education. Moreover, some states hold both a more restricted, long-term rainy day fund, often codified in the state constitution, that can be used under limited circumstances, and a more flexible, statutory reserve that may be tapped more easily to manage revenue volatility.
Many states also maintain separate reserve funds set aside to respond to natural or manmade disasters or emergencies, fund one-time capital projects, and for other purposes. These funds range in size, scope, and restrictions governing them, and their balances are generally excluded from rainy day fund and total balance amounts reported to NASBO.
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NASBO Data Note: States vary in how narrowly they define rainy day fund for the purposes of reporting in NASBO’s Fiscal Survey of States. Some states may choose to include all reserves available to supplement general fund spending in their rainy day fund amounts, whereas others may exclude more flexible operating reserves or reserves set aside for a specific purpose like education.
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Fact #8 – The target size of a state’s rainy day fund varies due to factors such as revenue volatility and other reserves available.
Rainy day funds as a percentage of general fund expenditures vary by state, ranging in fiscal 2025 from a low of 0 percent to a high of 88 percent. This variation is related to differing rainy day fund structures, policy decisions, fiscal conditions, and other factors. A state’s decision concerning the target amount of funds to hold in reserve is considered in conjunction with the revenue system. States that rely on more volatile revenue sources are likely to carry a larger relative balance in their rainy day funds than states with more stable revenue sources. This explains why, for example, energy-producing states that rely heavily on highly volatile severance taxes have historically held a greater amount of funds in budget reserves.
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NASBO Data Note: Measuring rainy day fund balances as a share of general fund spending is useful for comparing balance levels at different points in time, as it avoids having to adjust nominal dollars for inflation and population growth, and it appropriately measures reserves in proportion to the level of spending that those reserves are there to help support in the event of a downturn. When trying to discern national trends, it can also be more instructive to focus on the median rainy day fund balance as a share of spending, rather than using the 50-state total percentage. This is because the median is less likely to be skewed by outlier states.
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Fact #9 – Rainy day funds are typically more restricted in when and how they can be used compared to general fund ending balances.
If the rainy day fund is a state’s “savings account,” a state’s general fund balance may be viewed as more analogous to a “checking account”. Rainy day funds, as described above, are typically restricted accounts that can only be used under certain circumstances, such as in the event of a revenue shortfall. In contrast, the ending balance in a state’s general fund may be unrestricted and is often available to carry over as a resource to be spent in the subsequent fiscal year.
That said, sometimes a portion of a state’s ending balance is already designated or reserved for specific purposes or encumbrances, or a certain percentage of the balance is intended to be held in reserve. For example, a state may establish a minimum ending balance requirement in statute.
Fact #10 – Recent declines in total balance levels primarily reflect states spending down their general fund ending balances.
NASBO calculates states’ total balances as the sum of rainy day fund balances and general fund ending balances. Recent declines in total balance levels can be mostly attributed to states spending down prior-year surplus funds that accumulated in their general funds. Earlier this decade, states’ general fund ending balances swelled due to several consecutive years of budget surpluses resulting mainly from revenues exceeding original forecasts. From fiscal 2020 to fiscal 2023, states accumulated unanticipated revenue surplus funds totaling $416 billion during that period. Much of those funds accumulated in states’ ending balances, causing those balances to increase from $43 billion in fiscal 2019 to an amount nearly six times that level, reaching $254 billion by the end of fiscal 2023.
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NASBO Data Note: For some states, the rainy day fund balance is a discrete account within the general fund and therefore shows up in a state’s reported general fund ending balance in the Fiscal Survey. This is accounted for in NASBO’s calculations of total balances to avoid double counting; ending balance amounts cited in this section have also been adjusted to exclude any rainy day funds held within states’ general funds.
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In line with routine budgeting practices, states have spent down a portion of these surplus funds held in their ending balances in recent years, largely on one-time investments (with expenditures often occurring over multiple years), rainy day fund deposits, and transfers to other funds for specific purposes. As a result, general fund ending balances declined from their all-time high of $254 billion in fiscal 2023 to $214 billion in fiscal 2024 and $173 billion in fiscal 2025. They are expected to decrease further in fiscal 2026 based on enacted budgets. This dynamic is the main driver behind the recent declines that states have recorded in total balances.
Despite these declines, the vast majority of states still hold total balances representing 10 percent or more as a percentage of general fund expenditures. It is also worth noting that “total balances,” as defined by NASBO, only include rainy day funds and general fund ending balances and do not include all cash in a state’s treasury. States hold additional balances in a range of other special purpose funds not included in these figures.