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…Which states are best – and least – prepared for a recession such as the one we’ve likely already entered?
…[To get an answer to that question] I turned to Moody’s annual “stress test” of state budgets, which measures preparedness for a recession based on:
- the size of the state’s rainy day fund as a percent of its general fund reserve,
- and whether the state would be able to make up for such a fiscal shock as having a drop in tax revenue from fewer people working and an increase in Medicaid spending.
The Top 10 BEST Prepared States
With that said, below are the top 10 states that were best prepared for a deep recession at the end of 2019:
- …It could manage to have an unbelievable 117.5 percent of its 2019 revenues available to spend. As such, the state tops the nation by far in the number of days it could run on its $1.7 billion rainy day fund—397 days, or just over an entire calendar year.
- …Alaska would have an incredible 81.1 percent of its 2019 revenues and be able to remain operational without raising taxes or cutting services for 170 days, based on its massive $2.3 billion rainy day fund.
- …Oregon could still have 13.4 percent of its 2019 revenues available to spend. Based on its $1.3 billion rainy day fund, it could run for 46 days without any new income.
- North Dakota
- In a severe recession, North Dakota would still run a budget surplus of 12 percent of its 2019 revenues. The state could operate for 109 days on its $659 million rainy day fund.
- …Texas is well equipped to weather a recession with 9.2 percent of its 2019 revenues available. Texas could run about 70 days on its $10 billion rainy day fund.
- …Nevada could still run a budget surplus of 12 percent of its 2019 revenues, allowing it to operate for 27 days on its $332 million rainy day fund.
- West Virginia
- …West Virginia would have 5.3 percent of its total 2019 revenues available, even in a severe recession, according to Moody’s. It could remain in business for almost 60 straight days on its $753 million rainy day fund.
- …Delaware could still maintain a budget surplus of 3.5 percent of its 2019 revenues. Based on its $240 million rainy fund, the smallest state by area on this list could run for 20 days.
- New Mexico
- …New Mexico would run a budget surplus of nearly 3 percent of its 2019 revenues in a severe recession, according to Moody’s analysis. It could operate for about 90 days on its $1.9 billion rainy day fund.
- …[Even] in a “severe” recession…the state would still retain 2 percent of its total 2019 revenues. Alabama could operate for an estimated 35.3 days on its rainy day fund, which totaled $848 million in fiscal year 2019.
The 10 Least Prepared States
Below is the list of states that ranked at the very bottom in terms of preparedness, starting with number 41, Michigan:
- Michigan would run a budget deficit of 9.7 percent of 2019 revenues,
- New Hampshire (-10.2 percent),
- Mississippi (-10.2 percent),
- Pennsylvania (-10.5 percent),
- Florida (-10.9 percent),
- New Jersey (-13.9 percent),
- Oklahoma (-14.6 percent),
- Kentucky (-14.6 percent),
- Illinois (-15.8 percent) and
- Louisiana (-19.9 percent).