By Laila Kearney | Reuters
While U.S. states’ financial health has strengthened in 2018 compared with last year, fewer than half have enough financial reserves to weather the first year of a moderate recession, according to an S&P Global Ratings report on Monday.
Only 20 states have the reserves needed to operate for the first year of an economic downturn without having to slash budgets or raise taxes, S&P said.
“In their fight against recessions, budget reserves are what states send to the frontline,” the report said. “They are an internal source of immediate liquidity and can provide transitional funding to agencies before budget cuts take effect.”
States face worse revenue shortfalls in the next recession compared with the Great Recession, S&P said. That is because states rely more heavily on personal income taxes as a percentage of general fund revenues now than a decade ago, with the taxes currently contributing a combined 55 percent to the funds compared with 49 percent in 2008, S&P said.
