The roles of Budget Stabilization Fund

In "Substitution and Supplementation Between Co-Functional Policy Instruments" Yilin Hou and Gene Brewer talk about the two roles that Budget Stabilization Fund (BSF) have on General Fund Balances (GFB).

The first role is substitution. BSF is created by policy-makers in order to ward off spending pressure and limitations from balanced budget requirements of GFB. States take savings from GFB and place them into BSF.

The second role of BSF is supplemental. By increasing state's total savings substantially, BSF helps public administrators mitigate revenue shortfalls during economic downturns.

Although BSF roles help GFB, these multiple policy instruments are only effective at initial stages. During policy implementation process, both BSF and GFB encounter internal and external resistance resulting in increased budget displacement by supplemental policy overtime.

http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6210.2010.02223.x/full