States’ Economic Preparedness Is Highest Since 2000, Pew Says

(Bloomberg) -- First, the good news: thanks to surging tax collections, U.S. states collectively have built up the largest fiscal cushion since 2000.

Bad news: no one knows if that will be enough as the coronavirus pandemic spreads, businesses close and the stock market turmoil hits state finances.

“There is no telling the full magnitude and full duration of the impacts yet,” said Justin Theal, an officer at Pew Charitable Trusts, which on Wednesday released its latest snapshot of states’ savings.

Here are a few highlights from the Pew research, which is based on fiscal 2019:

• States for the past nine years have added cash to rainy-day funds, also called budget stabilization funds, for a record total of $74.9 billion
• The funds alone would support government operations for a median of 27.9 days, equal to 7.7% of spending, also a new high, compared with 17.3 days, or 4.7% of expenditures before the last recession
• At least 34 states can cover a greater share of their operating costs with their savings accounts than they could in 2007, the full budget year before the last recession

So far, Arizona has tapped its rainy-day fund for the state’s coronavirus response. Maryland, Georgia, and Washington are taking steps to follow suit, while Florida and Nebraska are planning to add more to their savings accounts because of the pandemic, Theal said in a phone interview. California, which in January was expecting a $5.6 billion budget surplus, is allocating aid from its general fund.

Karel Citroen, head of municipal-bond research at Conning, expects some state budgets to become unbalanced in the summer. And looking ahead, states that are already struggling to meet the rising retirement costs for their workforce will face even more trouble, as pension systems fail to meet their investment targets amid volatile markets.

“That is going to have long-term budget implications,” he said.

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