Economy State savings weaken as budget pressures increase, analysis warns

State rainy day funds — money reserved to cover unexpected expenses and patch short-term budget holes — are declining nationally as states face increased costs, lower tax revenue and federal budget cuts, a new analysis found.

The decline follows a period of strong reserves bolstered by federal pandemic aid and higher-than-expected tax collections, the report said.

Researchers at The Pew Charitable Trusts found that the number of days that state reserves could cover state operations fell in fiscal year 2025 — the first decline since the Great Recession.

State reserve funds will play a critical role in stabilizing state finances as they confront the most widespread budgetary pressures since at least 2020, the researchers said. Like household savings accounts, state reserves help fund major one-time investments or provide a cushion in times of disrupted tax revenues, including economic downturns. Lower reserves mean states could be quicker to cut state services or raise taxes in times of tight budgets.

https://washingtonstatestandard.com/2026/03/25/repub/state-savings-weaken-as-budget-pressures-increase-analysis-warns/