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Moody’s Analytics: More states ready for recession, Illinois one of 10 not ready

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Friday, December 6, 2019  |  Article  |  By Cole Lauterbach | The Center Square

Bonds, Bonding, Borrowing, Debt, Credit Rating , Budget--State (8) , Governor (44)
Illinois is one of only 10 states unprepared for the next economic downturn. 

With a number of economists predicting the next recession could be around the corner, analysts said most states were better prepared for a recession than in previous years. 

Moody’s Analytics, which operates independently of the credit-rating agency of the same name, found in “Stress-Testing States 2019” that 28 states have enough cash on hand to withstand a moderate recession “without having to raise taxes or cut spending and 12 states are within striking distance, while only 10 are still significantly unprepared.”

When a recession hits, the report said, demands for services increase while tax revenue declines. Hence, the need for a cash cushion to allow states, and local governments to a lesser extent, to provide services without raising taxes on an already economically-distressed tax base. 

“Research shows that extraordinary fiscal actions can harm regional and national economic recoveries, differentiating performance relative to that of neighbors,” it said. 

Illinois, with little-to-no rainy day funds to speak of, is one of the ten states that will likely not fare well in the event of another downturn. 

Former Gov. Bruce Rauner, tied up in a years-long budget standoff with Democratic state lawmakers resisting his “turnaround agenda” of pro-business reforms, wasn’t able to use the recent economic boost to sock money away. 

Gov. J.B. Pritzker, fresh off of a tax increase enacted over Rauner’s veto, has pledged to put money into a reserve fund. According to a study by the Pew Charitable Trusts, Illinois has about one-tenth of a day’s worth of reserve funds. Kansas, Montana, and New Jersey had none.  

The Moody’s Analytics report said that no state was ready for a recession as severe as what happened in 2009.