The big risk the Governor will have to face is the possibility that the investment markets may tank after making the contribution prepayment. Remember, if you lose 50 percent on your investments this year, you have to earn 100 percent next year just to break even on your principal. Will Rogers put it best, “I am not so much concerned with the return on capital as I am with the return of capital.”
It’s not a good idea to time the market. It’s better to dollar-cost average, which means investing the same amount at regular intervals over time.
FOUND IN: Transportation
The latest new vehicle sales data from California New Car Dealers Association shows continued but slowing growth in Californians purchases of new cars and trucks.
Two new reports by the Pew Charitable Trusts suggest that state governments across the country are shortchanging their employee pension funds and aren’t adding enough money in emergency funding accounts to prepare for the next economic crisis or recession.
Mishandling hundreds of billions of dollars of pension funds and draining emergency spending accounts could pose serious problems for governors and state legislators when the next big economic crisis hits.
Even states that have overcome the effects of the recession may face financial pressures that could shape their budgets now and for years to come. A major issue for a number of states is how to cope with an accumulation of unfunded public pension and retiree health care liabilities, which total more than $1.5 trillion nationwide. In addition, debate among U.S. lawmakers over financing for Medicaid, which is jointly funded by federal and state governments, has sparked fresh uncertainty over how much of the costs states will pay. The health care program accounts for the largest share of total federal aid to states. Another challenge for states is tax revenue volatility, which can confound policymakers’ best efforts to balance budgets.
Delaware is not the only state that has struggled to use its rainy day fund effectively. Between fiscal years 2003 and 2007, most states experienced strong tax revenue growth, which rose more than 7 percent on average annually across the 50 states. While this would suggest an opportunity for states to make deposits to their rainy day funds, 22 states did the opposite and made withdrawals at least once. Conversely, from 2008 to 2010, many states experienced their worst recession-driven revenue downturn in decades—a perfect time for withdrawals— and yet eight did not use any of their rainy day funds. In some states, like New York, repayment provisions probably discouraged their use. In others, clear conditions for withdrawal were absent, as was the case in Delaware.