Isn't a Flood a “Rainy Day?” Does the Political Nature of Disasters Impact the Use of States’ Rainy Day Funds?

Abstract

ObjectivesTo determine if state governments utilize rainy day funds (RDFs) for political purposes in the aftermath of disasters rather than their intended purpose of combating state cyclical economic downturns.MethodsThis research draws from multiple state‐level data sources to construct a panel data set from 1992 to 2010.ResultsDisaster damage, relief funds, and politics all influence the usage of states’ RDFs. We also find that the RDF balance is lower when disaster damages increase, when it is an election year, and the same party holds party control of the governor and legislature.ConclusionThe findings of this empirical research are consistent with the literature about the importance state‐level politics plays in the use of state stabilization funds intended for cyclical economic downturns as opposed to providing more politically expedient disaster relief.