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How to avoid huge budget shortfalls in the future

A new study argues that North Carolina needs a larger Rainy Day Fund to help the state better handle economic downturns.

During the 20-year history of the Rainy day fund – known officially as the Savings Reserve Account – the fund has never exceeded 5 percent of the prior year's budget. It will be eight percent in the new budget.

But the N.C. Budget and Tax Center said it should be doubled in the future to 16 percent to avoid the kind of huge shortfalls that the state has been facing during the 2001 recession and the Great Recession..

“The Great Recession has not only highlighted the need for such reforms, but also increased the public support needed to enact them,” said Edwin McLenaghan, a center analyst and author of the report.

“State policy makers should take steps to improve the Rainy Day Fund rules while support for such changes remains high to ensure that North Carolina is better prepared to address future revenue shortfalls and programs that help struggling families in times of economic distress.”
   

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