times when services are most needed. moreover, many government programs – in areas such as education or health care, for example – are likely to be most effective when funding sources are stable and predictable, allowing for longer - term planning. tools exist to help mitigate the effects of the business cycle on state budgets. many states deal with revenue fluctuations by building up reserve – or “ rainy day ” – funds during good economic times. measured as a percent of general fund expenditures, the aggregate reserve fund balances for all state governments stood at a record of about 12 percent at the end of 2006 ; the states represented by the slc had accumulated above - average reserves of around 16 percent. these high reserve - fund balances were helpful in lessening the severity of spending cuts or tax increases in many states. nevertheless, given the depth of the recent the southern legislative conference comprises the states of alabama, arkansas, florida, georgia, kentucky, louisiana, mississippi, missouri, north carolina, oklahoma, south carolina, tennessee, texas, virginia, and west virginia. see southern legislative conference ( 2010 ), “ what are the revenue estimates for fiscal years 2010 and 2011 in the slc states? ” question of the month, february, www. slcatlanta. org / qom / 2010 / quesfeb10. html. recession, even these historically high reserve - fund balances proved insufficient to buffer fully the budgets of most states. thus, state governments may wish to revisit their criteria for accumulating fiscal reserves. building a rainy - day fund during good times may not be politically popular, but it can pay off during the bad times. in principle, some smoothing of state government expenditures over time could take place through the capital budget. maintaining or even increasing the pace of infrastructure construction when the economy is weak fosters economic development and provides local jobs, and it may even allow the state to get more bang for the buck because of increased competition among private contractors when demand is slack. however, voters and policymakers may understandably be reluctant to approve new bond issues and take on additional costs for debt payments in a period of fiscal and economic stress. beyond balanced - budget rules, state government finances also fluctuate because of the increasing sensitivity of their revenues to changes in economic conditions. for example, capital income, which tends to vary substantially more than wage and salary income, has over time become a relatively more important source of state personal income taxes. 6 also, sales taxes that understandably

, i must recognize and thank president harker for his forward - looking leadership. the third district and the federal reserve system are both better for his service. pat, thank you! to close, thank you again for allowing me these few moments to start the day. i look forward to today's discussion and to our conversations. 1 these remarks represent my own views and are not necessarily those of my colleagues on the federal reserve board or the federal open market committee. 2 / 3 bis - central bankers'speeches 2 michelle w. bowman, " innovation in the financial system " ( speech at the salzburg global seminar on financial technology innovation, social impact, and regulation : do we need new paradigms?, salzburg, austria, june 17, 2024 ). 3 / 3 bis - central bankers'speeches