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Many States ‘Substantially Unprepared’ For Next Recession

With over eight years having passed since the end of the Great Recession, the third longest period of economic expansion in U.S. history, the next downturn could come at any time. But many states aren’t well prepared for it, according to a report released last week by Moody’s Analytics.

 

The report, which is based on stress testing of budgets in all 50 states, indicated that only 16 states, including Alaska, Texas and New York, have large enough cash reserves to weather a moderate recession. To merit that designation states had to have a budget reserve amounting to about 10 percent of their budget, on average, although Alaska, with a revenue base that is very dependent on volatile commodity prices, needed a reserve of over 40 percent of its budget, which it far exceeded with a nearly 233 percent reserve.

 

According to the report, 19 states, including Alabama, Florida and California, would likely have to raise revenues, cut spending or both to make it through a moderate recession with the cash they have on hand. The remaining 15 states are “substantially unprepared for an economic downturn, and that level of unpreparedness will have economic repercussions if not addressed,” the report said. (MOODY’S ANALYTICS, GOVERNING)