A new study published by the Mercatus Center at George Mason University ranks each state’s readiness for an economic downturn based on the size of its rainy day savings fund and budget surplus.
“A few short years after the Great Recession, some states have managed to bounce back and prepare for the worst-case scenario,” said the study’s author, economist Erick Elder of the University of Arkansas at Little Rock. “Others failed to learn from the experience.”
Elder calculates how much revenue each state would be likely to lose in mild, moderate, and severe recessions, based on the state’s unique past experiences during economic booms and busts.
He then determines what percentage of these losses states’ existing emergency funds would cover, and whether the states could avoid resorting to spending cuts or tax increases.
No one knows exactly when the next recession may hit, and fortunately, no recession seems imminent at the national level. This new research shows that even ill-prepared states may still have time to fully fund their rainy day funds, shielding taxpayers and residents who rely on government services from future pain.
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