1. Rainy Day Funds October 30, 2014

2. NTA Session I CounterCyclical Fiscal Policies for States and Localities

3. NTA Session II Volatility in States: Are Rainy Day Funds Up to the Task?

4. Current Utah Proposal Budget grows at the long run rate rather than forecasted revenues Surplus years accrue into a rainy day fund Deficit years are financed by the previous surpluses accumulated in the rainy day fund Separates the debate of government size from tax policy

5. Two Year State Budgeting Cycle

6. Alternative Objectives Long term saving plan with expenditure smoothing Forecaster indemnity fund

7. Revenue and Expenditure Smoothing

8. Cycle and Trend

9. Unobserved Components Models Hodrick-Prescott The l values gives the relative importance of smoothing and controls the degree of smoothness. The larger values for l give more smoothness. Hodrick and Prescott suggest the following values for l. 100Annual data 1,600Quarterly data 14,400Monthly data

10. Cyclical Component of Total State Tax Revenue

11. Proposed Saving Plan Won’t Work for Tax Revenue

12. Coincident Indicators Nonagricultural employment Unemployment rate Average hours worked in manufacturing Real wage and salary disbursements

13. Would Budgeting Plan Work for US Economy?

14. Rainy Day Funds would need an initial endowment.

15. Probability Distributions of State Growth Rates Absolute Location: Mean and median Scale: Standard deviation and interquartile range Symmetry: Skewness Outliers: Kurtosis Relative Inherent Growth Rate Cyclical Growth Volatility Systematic and Unsystematic Risk Standard Error of Regression Dynamic Growth Volatility Switching Regression Probability of Staying in Expansion Probability of Staying in Recession

16. Mean Growth Rate State Economy 1992-2013

17. Standard Deviation of Growth Rate State Economy 1992-2013

18. Equity Market Growth and Risk

19. State Growth and Volatility Relative to US

20. Systematic Risk (R-Squared) State Economy 1992-2013

21. Nonsystematic Growth Rate (Alpha) State Economy 1992-2013

22. Systematic Volatility (Beta) State Economy 1992-2013

23. Adaptive Expectations (Exponential Smoothing)

24. Adaptive Expectations Growth Rate State Economy 1992-2013

25. Adaptive Expectations Forecasting Error State Economy 1992-2013

26. Switching Regression

27. Transition Probabilities Future ExpansionRecession Current Expansion0.9040.096 Recession0.2450.755

28. Ability to Replicate the Business Cycle

29. Revenue and Expenditure Smoothing

30. State Tax Revenue During an Expansion

31. Expenditures and the Budget

32. State Tax Revenues

33. State Expenditures

34. Surpluses and Deficits Billions of Dollars

35. Rainy Day Fund