Source: Sarah Crane, Regional Financial Review, October 2019
The business cycle is at a critical juncture. Recession risks in the U.S. are as high as they have been since the record-long economic expansion began more than a decade ago. Recessions and their place in the business cycle are an accepted fact of life in any organization, especially government. Therefore, preparing for recessions is an equally inescapable concept, with potentially devastating consequences for those who treat it as an afterthought. To help state governments better prepare for the next recession, Moody’s Analytics has taken to performing annual stress tests on their budgets. This paper will serve as an update to our 2018 state stress-testing exercise. We estimate the amount of fiscal stress likely to be applied to state budgets under different recession scenarios and compare that stress to the amount of money that states have set aside in reserve.