Wyoming looks to Minnesota in setting its rainy-day fund

Wyoming lawmakers debating how much money to squirrel away in their rainy-day fund are taking a page from Minnesota's playbook.

Legislators there are adopting a statistical model developed by two Minnesota economists that help account for the volatility in different revenue sources from year to year. The model helps policymakers determine just how much they need to set aside to weather economic downturns or other fiscal challenges.

"It's flattering to have somebody pick up work that you did and apply it to policy analysis in another state," said Tom Stinson, former state economist at Minnesota Management & Budget (MMB).

Stinson developed the model with Matt Schoeppner, an MMB economist. The agency is charged with publishing an economic forecast for the state that lawmakers rely on to set Minnesota's budget.

Stinson said work on the model began around 2008. From year to year, the economists had observed drastic changes in how much revenue the state collected from the capital gains tax.

"The amount that people realize from selling stock and things like that — it goes way up one year and next year can go down, or even turn negative," he said. "It's always a challenge with capital gains."

The model has proved adaptable to other states — even if their economies and tax structures are different from Minnesota, said Brenna Erford, a Pew Charitable Trusts manager who studies state budget policy.

"It is a leading methodology," she said. "It's the only really rigorous, evidence-based model for determining a state's savings target. This is why Wyoming took an interest."

Minnesota, whose own rainy-day fund currently stands at $994 million, has seen its fiscal picture improve. A recent law change requires that a third of the November forecast balance be automatically transferred to the state's rainy day fund until it reaches about $2.2 billion. The state has repaid schools after borrowing from K-12 education to balance the state budget during fiscally challenging years. The budget surplus stands at $865 million, and is expected to grow when economists release an updated revenue forecast late this year.

Standard & Poor's also recently upgraded the state's bond rating outlook, in part because of the state's strong fiscal position and strong ­economic performance overall.

"Our adequate, adjustable, and automatic reserve policy is smart fiscal management," said MMB Commissioner Myron Frans. "And that is meaningful for Minnesota — just look at our positive outlook from Standard & Poor's and ranking as America's top state for business by CNBC."