Stress-Testing States

From Moody’s Analytics, October, 2017

One of the few great inescapable facts in the field of economics is the reality of the business cycle. No matter how high-flying an economy might appear, another recession is coming sooner or later. It can be difficult, if not impossible, to regularly predict when one might occur, or how severe it may be, but recessions and their place in the business cycle are an accepted fact of economic life. Therefore, preparing for recessions is an equally inescapable concept.

It has been more than eight years since the end of the last recession, the third longest period of expansion in U.S. history, and many are rightfully beginning to look ahead to the next economic downturn. However, one of the most effective ways to look forward is to look back and make sure that we have adequately learned the lessons of the Great Recession. Nowhere is this type of postmortem more appropriate than for state and local governments.

Stress-Test Findings

• 16 states have the funds they need for the next recession
• 19 states have most of the funds they need for the next recession
• 15 states have significantly less funds than they need for the next recession

Hawaii --

Table1: Stress-Test Results - Moderate Recession

Tax revenue shortfall  -8.5% (637.8M)

Medicaid spending increase  0.8% 57.1M

Combined fiscal shock  -9.2% (695.0M)

Table 2: Stress-Test Results - Severe Recession

Tax revenue shortfall  -11.3% (845.4M)

Medicaid spending increase  1.2% 90.1M

Combined fiscal shock  -12.5% (935.6M)

Table 3: State Preparedness - Moderate Scenario % of projected fiscal 2017 revenues

11.1% -- Actual reserves

9.2% -- Necessary reserves

1.8% -- Difference between actual and necessary reserves

read … Moody’s Stress Test

SA: Hawaii has enough in cash reserves to weather next recession, report says