It’s Raining: An FAQ on Using Our State Savings Account to Respond to the COVID-19 Crisis

What is the Rainy Day Fund?

The Stabilization Fund — often referred to as the “Rainy Day Fund”– is a cushion for times when state tax collections fall abruptly and/or state expenditures rise sharply. It is like a savings account for the state to turn to when there is not enough revenue flowing into the General Fund (the state’s “checking account”). The Rainy Day Fund helps the state continue to pay for health care, education, public safety, and other priorities in difficult economic times. This helps the state bridge the gap until the crisis is past, the economy rebounds, and tax collections recover.

To do this, the state needs to put enough money into the fund during good times, so it has a large enough balance to protect needed services in bad times. One of the main sources of revenue deposited into the fund — taxes on capital gains (income derived from the sale of stocks, bonds and other assets) — has performed exceptionally well during the last several years. As a result, the Rainy Day Fund currently holds some $3.48 billion as of mid-March, 2020. While this is an all-time high for the Fund, the Fund alone will not be sufficient to see us through the fiscal challenges that lie ahead, as the Commonwealth and local governments respond to the outbreak of COVID-19. State and local governments will require large infusions of federal support as well.

Rainy Day Fund Year-End Balances, FY87-FY20 (Inflation Adjusted, Millions 2020 $s)

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When do we begin and how much should we withdraw from the Rainy Day Fund?

The challenges that COVID-19 is creating — to individuals and families, communities, our health care systems, workers and businesses, and our overall economy — are large, widespread, and will persist for many months and likely for several years. In the near-term, the Commonwealth must focus on ensuring the health, housing, nutrition, and basic well-being of everyone in our state. This will mean drawing on the Fund, as necessary, to ensure basic needs are met. The Fund, however, is a limited resource. First priority must go toward protecting vulnerable populations: low- and moderate income households, children, older adults, and immigrants.

The deep and long-term effects of the current crisis will take months or years to resolve, so we must be careful not to empty the Fund too quickly. Over the coming weeks and months, the Commonwealth will begin receiving federal dollars to help address the public health and economic strain caused by the virus. We must strike a balance and make informed, real-time decisions about when it makes sense to use incoming federal dollars versus our more limited Rainy Day Fund. State lawmakers may want to avoid using limited state dollars to pay for programs and services that the federal government will pay for eventually.

What are the rules for using Rainy Day Fund dollars?

Legally, state lawmakers may access the Rainy Day Fund dollars when 1) revenues fall short of current year budget requirements, or 2) when there is a crisis affecting the health, safety, or welfare of the people, or 3) to maintain the fiscal stability of the Commonwealth. The Legislature may transfer money from the Rainy Day Fund to the General Fund (the fund from which most of the state’s spending occurs) by a simple majority vote in each chamber (House and Senate) and accompanying approval from the Governor.[1] Typically, this would occur as part of the standard legislative process for specifying funding amounts for each of the state’s many programs and services, either as part of the General Appropriations Act (the annual state budget) or a mid-year supplemental spending bill. Once Rainy Day Fund dollars are transferred to the state’s General Fund, they may be spent the same way as other General Fund dollars. Because the Rainy Day Fund is defined as a “budgeted fund,” these dollars are not subject to any additional restrictions.

When has the Commonwealth used Rainy Day Fund dollars in the past?

The balance in the Rainy Day Fund has fluctuated significantly over the past two decades, with the state accessing these funds during each recession (see chart above — all totals have been adjusted for inflation to 2020 dollars). At the end of Fiscal Year (FY) 2001, the Rainy Day Fund carried a balance of $2.53 billion.[2] Over the next two years, a series of tax cuts and a national recession led to state revenue shortfalls, with a total of $2.28 billion being transferred out of the Fund to help balance the state’s budget.[3] As the economy recovered, the balance in the Fund grew once again, this time to $2.96 billion in FY 2007. With the start of the Great Recession in FY 2008, the Rainy Day Fund again helped legislators balance the state’s budget: $385 million was taken out in FY 2008, $1.67 billion was taken out in FY 2009 and $246 million was taken out in FY 2010. More recently, a strong economy, generating exceptional amounts of capital gains income, has produced record year-end totals. The fund grew by over $1.41 billion in 2019 alone and now holds a total of $3.48 billion.

Where does the money in the Rainy Day Fund come from?

Money in the Rainy Day Fund comes from several sources. First and foremost is “excess” capital gains tax revenue, meaning tax collections on capital gains income that exceeds a threshold amount calculated by the Department of Revenue (DOR) each year.[4] The current threshold stands at $1.26 billion.[5] Collections that exceed the annual threshold are deposited into the Fund at the end of the fiscal year. Other notable sources include:[6]

  • Any funds left over at the end of a fiscal year in any of the state’s budgeted funds (after a few adjustments);
  • Investment income (interest) earned by the Fund;
  • Any tax judgment or settlement larger than $10 million;
  • Ten percent of Category 1 gambling tax revenues; and
  • Any transfers deposited from other sources as directed by the Legislature.

What are some factors likely to affect the Fund’s balance in FY 2020 and FY 2021?

It is clear that, at a minimum, the current and coming fiscal years (FY 2020 and FY 2021) will present significant challenges for state budget writers. On the spending side, a sharp rise in unemployment will require the state to spend much more on income supports and other safety net programs in order to see families and communities safely through this crisis. Likewise, the times will demand large additional investments in health care, public health, and public safety, as well as substantial additional assistance to local governments, which also will be struggling with rising emergency costs.

On the revenue side, the need for social distancing will lead to large job losses. This will produce sharp declines in state collections from the personal income tax, corporate income tax, sales taxes, and more. There also will be significant declines in other, non-tax revenues such as from the lottery and other gambling sources. Local governments, meanwhile, will face revenue losses on meal, hotel, and jet fuel taxes, miscellaneous local fees and declines in tax from new construction (a source of property tax growth for cities and towns). Almost certainly, these revenue declines — at both the state and local levels — will require large withdrawals from the Rainy Day Fund in order to fill the resulting budget gaps.

As noted above, the primary source of revenue for the Rainy Day Fund over the last several years has been excess capital gains tax collections. Based on the strong performance of the stock market during 2019, DOR had projected capital gains collections in FY 2020 of $1.80 billion, with $540 million of that total being above the threshold and thus destined for deposit into the Rainy Day Fund at the end of FY 2020.[7] With other state revenue sources (including sales, personal income withholding and corporate quarterlies), likely to underperform earlier expectations during the remainder of the current fiscal year (FY 2020), one likely possibility is that the Legislature will choose to direct this $540 million to the General Fund before it is deposited into the Rainy Day Fund. Further complicating the FY 2020 revenue picture is the strong likelihood that Massachusetts will follow the federal government in postponing 2019 tax payments from April 15, 2020 to July 15, 2020, opening a very large hole in the state’s FY 2020 revenue stream. This would create pressure to access other sources of revenue in FY 2020, including from the Rainy Day Fund and still more so from the federal government.

Looking ahead to the coming fiscal year (FY 2021), the state tax revenue picture looks worse still. A severe recession — which now seems all but inevitable — will require budget writers to downgrade FY 2021 revenue projections sharply. Examining the past for clues about our current predicament suggests reason for concern. In the first year following the start of the last two recessions (so, in FY2002 and FY2009), Massachusetts state tax collections dropped by 16.1 percent and 13.8 percent respectively, adjusted for inflation. In each of these previous downturns it took another five years for inflation-adjusted collections to return to their pre-recession levels. Were similar percentage drops to occur at today’s collection levels, the Commonwealth would see a loss of $4.2 billion to $4.8 billion in FY2020. Factoring in the further loss of expected tax growth during the coming fiscal year (growth which now seems unlikely to materialize), tax collections could fall $5.0 billion to $5.7 billion below the levels lawmakers had been expecting for FY2021.

Looking more narrowly at the subset of tax revenues designated for the Rainy Day Fund, DOR had projected (in December 2019) that capital gains tax collections would total $1.68 billion.[8] The Governor, in his FY 2021 budget proposal (released in January 2020), assumed a resulting year-end deposit to the Fund of $310 million.[9] Given the sharp sell-off in stock markets over the last few weeks, it is unclear what the capital gains tax picture for FY 2021 will be. While many of these sales may have generated substantial profits, these profits could well be balanced with large losses, with net taxable capital gains income falling well below earlier estimates. Between uncertainty on the capital gains front and near certainty of very large revenue declines from other sources, it seems clear the state will need to lean heavily on the Fund in the near term and on the federal government over the next two or more fiscal years.

The Fund is an essential tool and one we are fortunate to have available. It is one we must access in the current fiscal year to meet immediate needs, and in future years to prevent drastic cuts that would affect our most vulnerable populations. Once our state economy begins to recover, we must be sure we prioritize replenishing the Fund in order to prepare for whatever crisis next comes our way.


[1] If the Governor vetoes, in part or in whole, a bill approved by the Legislature, the Legislature can override this gubernatorial veto with a two-thirds vote in each chamber.

[2] See Comptroller’s Stabilization Fund webpage:

[3] While some $1.58 billion in withdrawals were made during this two year period, roughly $500 million in deposits occurred as well. The net draw on the fund thus totaled some $1.07 billion.

[4] Commonwealth of Massachusetts, Official Statement accompanying General Obligation Bond offering, February 19, 2020 (see pg. A-33 and A-34):

Since capital gains tax collections can vary widely from year to year, they are a relatively unreliable source of revenue to pay for ongoing state programs. In order to protect against the structural budget problems that come from making annual budget decisions dependent on variable capital gains tax collections, “excess” collections are deposited into the Rainy Day Fund. This means that in years when capital gains tax revenues are high, the “excess” revenues are deposited into the Rainy Day Fund, creating a reserve that can be drawn on when the economy turns down, helping to smooth state funding across the budget.

[5] See DOR’s FY2021 Consensus Revenue Estimate Briefing Book, pg. 24:

[6] Commonwealth of Massachusetts, Official Statement accompanying General Obligation Bond offering, February 19, 2020 (see pg. A-33 and A-34):

Massachusetts General Laws: General Law — Part I, Title III, Chapter 29, Section 2H

Massachusetts General Laws: General Law — Part I, Title III, Chapter 29, Section 5G

[7] See DOR’s FY2021 Consensus Revenue Estimate Briefing Book, pg. 24:

[8] See DOR’s FY2021 Consensus Revenue Estimate Briefing Book, pg. 24:

[9] MassBudget, “FY 2021 Governor’s Budget Brief — Revenue” (see discussion of Stabilization Fund at end of brief):


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