Many states have learned lessons from the Great Recession of 2007-09 and are better prepared for the next economic downturn, according to findings by the National Association of State Budget Officers (NASBO) and other analysts.

“Rainy day funds are growing as a share of state budgets,” said Kathryn Vesey White, director of budget processes for NASBO. “We see that as a positive sign.”

With the longest economic expansion in U.S. history in its eleventh year, concerns about a prospective downturn have increased. An August survey by the National Association of Business Economics found that 38 percent of economists expect a recession in 2020.

The economy has been growing since the Great Recession ended in June 2009. But states and cities were so hard hit that some of them have not yet fully recovered, according to the Pew Charitable Trusts.

Total employment by state and local governments was 19.8 million before the Great Recession. Today it’s slightly less. Economist Sarah Crane of Moody’s Analytics sees this as a sign that some governments have moved cautiously on hiring despite a job surge in the private sector.

The biggest change in state behavior has been a hefty increase in rainy day funds. The median rainy day fund balance as a percentage of general fund spending has risen to 7.5 percent, White said. Before the Great Recession, it was 4.8 percent.

There are huge differences among the states, however. California has set aside reserves of $19 billion, most of it in a rainy day fund. Illinois, Kansas and New Jersey have no rainy day funds at all.

According to NASBO, several states have over time made policy changes that automatically set aside some revenues. For example, North Carolina in 2017 adopted legislation that puts a share of forecasted general fund revenue into its rainy day fund. The same year North Dakota passed a law to deposit into its rainy day fund severance tax revenue above a certain threshold.

California, Maryland, Massachusetts and Minnesota have also made changes to divert above-average or unanticipated state revenues into their rainy day funds.

The changes have helped. Moody Analytics in 2018 found that 23 states had the funds needed to get them through a moderate recession and that another 10 states were within striking distance of this goal. That figure could improve when a follow-up report is issued later this year, as many states are pouring money into rainy day funds or other reserves during 2019.

“States have learned lessons of the past and are taking seriously the prospect of an eventual recession,” said Crane, a co-author of the Moody Analytics report.

Rainy day funds are not the sole measure of preparedness. Despite dramatic improvement in its financial position under former Gov. Jerry Brown (D), California could be vulnerable in a severe recession because the Golden State depends on high-end income taxes for much of its revenue. These revenues nosedived in the Great Recession.

The economic profiles of states also matter. As an example cited in the Moody Analytics report, Pennsylvania, which has a flat income tax, and Florida, which has no personal income tax, both have relatively stable tax structures.

“However, the level of potential fiscal shock in Florida is much larger than in Pennsylvania because of [Florida’s] high reliance on tourism and housing versus Pennsylvania’s reliance on the more noncyclical industries of health care and education,” the report said.

States and cities suffer in recessions because revenues from sales and income taxes decline while demand for services, especially in health care, increase.  Unlike the federal government, which engages massively in deficit financing, all states except Vermont are required to balance their budgets.

During the Great Recession, joblessness and the accompanying loss of health benefits drove millions of people onto Medicaid, the joint federal-state program that provides health care for the poor and disabled. This proved an immense fiscal burden for the states.

The situation may be different in the next downturn because of the Affordable Care Act (ACA), which passed in 2010 on a party-line vote, becoming operative in 2014. Thirty-two states have expanded Medicaid under the ACA, often called Obamacare. As a result, many of those who would seek Medicaid during a recession are in the expansion states already on the rolls.

The view that an economic downturn is just around the corner spiked in August, spurred by the U.S.-China trade war, slowing global growth and an investment situation in which short-term bonds paid more interest than long-term bonds. This is known as an inverted yield curve, a predictor of the last four U.S. recessions.

Since then, the yield curve has returned to nearly normal and U.S.-China trade tensions have eased. The European Central Bank has taken steps intended to prod global growth. Many economists have become more optimistic that the United States can evade or at least postpone a downturn.

“The household sector remains nearly three-quarters of the U.S. economy and displays a healthy mix of low unemployment and rising wages,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office. “As long as that continues, we will avoid a recession.”

No one knows how long this “healthy mix” will last. The recent oil price spurt after a major Saudi Arabia oil facility was damaged in a drone attack dramatically demonstrated how an unpredictable event can affect the economy.

Most economists believe recessions are inescapable, but Australia hasn’t had one in 27 years. Writer-investor Zackary Karabell, author of The Leading Indicators, believes that most recession models do not adequately account for the impact on the economy of high tech, which he says is powering growth at lower cost.

Nor does anyone know if the next downturn will be mild or severe. CNBC senior market analyst Michael Santoli points out there’s a lot of room between the present 2 percent-plus growth rate and a recession, which is defined as two consecutive quarters of negative growth.

Adding to the uncertainty, recessions arrive at different times in the states. The Economist recently observed that four states in the U.S. heartland — Indiana, Ohio, Pennsylvania and Michigan — are among a “modest but growing number of states experiencing falling employment.” Donald Trump carried these states in 2016 and with them won the presidency.

States were surprised by the Great Recession. Unaware of the deepening crisis, many states increased budgets and hired new workers in the summer of 2008, more than half a year after the recession began.

Not until the investment bank Lehman Brothers collapsed on Sept. 15, followed ten days later by government seizure of Washington Mutual, a giant savings and loan association, did the full extent of the crisis become apparent. State budgets were hit hard in 2009 and in many states for several years afterward.

Today, it’s encouraging that so many states are putting money away to see them through the next fiscal crisis. Unprepared states should get the message.

While we can’t say with any certainty when the next downturn will arrive, we know that no economic expansion lasts forever. The lagging states should start saving for the inevitable rainy day.

Lou Cannon is a former White House correspondent for the Washington Post and the author of several books, including "President Reagan: The Role of a Lifetime."

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Rainy-Day Fund Balances Vary Widely Across States

Wyoming has the largest estimated fiscal year 2019 rainy-day fund balance as a percentage of total state expenditures, at 109 percent, according to the National Association of State Budget Officers’ Spring 2019 Fiscal Survey of States. California has the largest FY 2019 rainy-day fund balance in terms of total dollars, at $17.8 billion, which is expected to make up about 12.4 percent of the state’s total expenditures for the year. However, three states - Illinois, Kansas and New Jersey - have no rainy-day funds at all.