States Stung by Last Recession Build Record Savings for Next One

(Bloomberg) -- The decade since the last recession has left U.S. states well prepared for the next one.

State governments are using the tax revenue thrown off by the record-long economic expansion to build up their savings accounts, pushing a key measure of their reserves to the highest on record, according to a report from the National Association of State Budget Officers. The median balance in state rainy-day funds was enough to cover about 7.6% of their general budgets in 2019, the most ever and up from 1.6% in 2010. They are expected to rise to 8% in the current fiscal year, according to the report.

“A particularly positive trend in state finances that we’ve observed in recent years has been the strengthening of reserves,” said Kathryn White, director of budget process studies for NASBO and author of the report.

The stockpiles will be crucial to helping state governments avert the kind of steep budget cuts, layoffs and tax increases that followed the downturn set off in 2007 by the housing market crash.

Yet states are also pouring money into government programs. They approved $39.1 billion in spending increases for the current fiscal year, driven heavily by $19.4 billion for K-12 and higher education, according to the budget officers report.

Given the favorable financial conditions and large savings, even with the increase in spending states will be better prepared for another recession, said White.

“The impacts that states had during the Great Recession, with steeply declining revenues, really left them wanting to make sure they had more money set aside for future recessions,” said White.

To contact the reporter on this story: Fola Akinnibi in New York at fakinnibi1@bloomberg.net

To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, William Selway, Michael B. Marois

©2019 Bloomberg L.P.