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The Founder of Rainy Day Funds

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By The L. Douglas Wilder School of Government and Public Affairs, Virginia Commonwealth University
May 17, 2020

The devastating economic impact of the COVID-19 pandemic sweeping through every nook and cranny of the nation likely will be felt for many years to come. As states begin to develop their recovery plans, some can look to their rainy day funds. In Virginia, the foresight and financial management skills of L. Douglas Wilder, its 66th governor, who managed the state through a challenging recession, may prove a valuable resource in 2020 and beyond. Wilder is mindful that, “The current malady is not man-made, though some of the results therefrom are indeed so.”

Thirty years ago, the country was on the verge of a recession and states were struggling to deal with revenue shortfalls. Virginia had been fortunate to weather previous economic downturns. But in 1990, newly elected Governor Wilder inherited a budget with a hefty shortfall. He planned to cut enough from the budget to run a surplus and, in the process, created one of the country’s first rainy day funds to help states weather unexpected economic downturns, like the one caused by the current pandemic.

Wilder recalls that he had made campaign pledges and promises and was anxious to prove to be true to his word. His campaign advisor, Paul Goldman, echoed Wilder’s sentiment. “Even with a Democratically controlled legislature, it wasn’t a promise that could be walked back,” Goldman recalls.

As the date neared for the governor’s address to the legislature on the State of the Commonwealth, he sought a meeting to hear the facts. His anxiety was met with the shocking discovery that the state was broke. He had inherited a budget deficit of more than $2 billion dollars.

Wilder, who grew up with seven siblings, during the Depression, in the segregated neighborhood of Church Hill, not far from the State Capitol, had learned from an early age how to be frugal and how to save. As governor, he wanted to do more than balance the budget; he wanted to create a $200 million revenue reserve and a process to create an on-going rainy day fund in Virginia. When he discovered the state’s budget woes, he knew something drastic had to change.

Ric Brown, deputy director of the Department of Planning and Budget remembered, “The legislature didn’t like the idea of a reserve at a time when they were having to cut. But the Governor fought hard for it.”

“When Governor Wilder was elected, there was a belief that he would spend liberally to support his priorities but, in fact, he was one of the most fiscally conservative governors—opposite of what people expected him to be,” noted Paul Timmreck, who served as Wilder’s secretary of finance. “The rainy-day fund was his idea. He was the driver. And he persevered despite the pushback from the legislature.”

Goldman recalls that it was not only the legislature who would have approved of the “tax and spend” approach. The rainy-day fund would never have come to be without Wilder’s dogged determination, noting, “He was determined to fix it once and for all as opposed to band-aid solutions.”

Wilder noted that at the time the lottery was enacted, the administration and the legislature advised the general public that the proceeds from it would go toward capital construction. Further, when the sales tax had been created, the general public was advised that it was to fund education, but transportation needs became so demanding that the sales tax also now had to fund those needs.

At the end of the 1990 legislative session, The Washington Post wrote, “Anyone who still thought the election of L. Douglas Wilder as governor might send Virginia into a frenzy of impulse spending or big-ticket programs got a different message. The governor remained truer to his frugal word than even veteran Wilder-watchers had thought he would when the session opened. Most legislators from both parties wound up high in their praise of the new governor’s profiles in prudence. Gov. Wilder had said from the start that the money wasn’t there for big spending—and it never did show up.”

The $200 million reserve in the budget was just a first step for the governor. At that time, only four states had constitutionally based rainy day funds. The next step was to create a permanent fund. As part of the 1990 Appropriation Act, the Joint Legislative Audit and Review Commission (JLARC) was directed to, “Review Virginia’s executive system of executive planning, execution and evaluation.” The resulting report proposed a constitutional amendment, “To ensure that the (rainy day) fund would become a permanent part of the Commonwealth’s budgetary system.” The General Assembly passed the amendment to Virginia’s Constitution, Article X, Section 8 during its 1991 and 1992 Sessions and it was ratified by voters overwhelmingly in November 1992, taking effect on January 1,1993.

Governor Wilder also worked to protect the Commonwealth’s AAA bond rating by creating a Debt Capacity Advisory Committee (DCAC) by Executive Order in 1991. (The committee was later codified in the Code of Virginia). The Commonwealth’s triple-A bond rating, which it has held since 1938, facilitates access to the capital markets at the lowest borrowing cost.

“One of the more pleasing things to me was that we were able to create a mechanism preventing Virginia from going broke,” said Wilder, reflecting on his time in office. “We funded those things for taxpayer dollars to be better intended; ensuring that our basic needs would always be met and stressing the need for necessities over niceties.”

Today, the state’s rainy day fund will almost assuredly be used to address the pandemic—a fortuitous lever available to policymakers. As Goldman notes, “Because of the way Virginia’s government is structured, governors are really adherent to the general assembly for the most part. Most of them recognize that they will be limited in their accomplishments in one term. Some leave a legacy that spans longer than others, Wilder’s will last in perpetuity.”


Author: The L. Douglas Wilder School of Government and Public Affairs, Virginia Commonwealth University. The Wilder School embodies the values of independent thought and public service championed by Governor Wilder, who brings that commitment to good governance as a distinguished professor of public policy.

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