Accumulation and Use of Rainy Day Funds for Pennsylvania School Districts

What is it about?

While researchers have examined fiscal stabilization for state and local governments, less attention has been dedicated to special purpose governments, such as school districts. This paper fills the gap by examining the general unassigned fund balance of Pennsylvania school districts before and after the Great Recession using a Two-Step Generalized Method of Moments estimator. Although Pennsylvania imposes limitations on the unassigned fund balance, half of school districts are noncompliant, choosing instead to accumulate savings above the limits to improve their budget flexibility. Since the Great Recession, however, state revenue constraints have challenged savings accumulation. Additionally, while districts use savings for covering expenditures, less unassigned fund balance was drained during downturn years due to cutback management. Collectively, these findings signal a “new normal” for Pennsylvania districts.

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