Though Louisiana began recovering from a 20-month recession in May, the state doesn’t have enough reserves to withstand the next U.S. economic downturn if one were to occur soon, according to a new analysis from Moody’s Analytics.
Louisiana needs at least 27% of its fiscal year 2017 revenues in reserves to stay afloat during the next recession without having to resort to major cuts in services and tax increases, the report says. But the state only has 3.1% of those funds—making it ill-prepared for the even a moderate recession.
It’s been more than eight years since the Great Recession ended, the third-longest period of expansion in U.S. history, Moody’s Analytics notes. But Dan White, head of the fiscal policy research at Moody’s Analytics, says another recession is coming sooner or later.
“An inescapable economic reality is that there will be another a recession, regardless of how high-flying the economy may appear as such,” he says. “It is only prudent for states to prepare themselves for that recession.”
Economists at Moody’s Analytics ran a stress test of all 50 states to arrive at an estimate of each state’s recessionary needs if a moderate or severe recession were to occur. The study takes into account the impact of the business cycle on state revenues and spending over two fiscal years.
Louisiana is one of 15 states that have significantly fewer reserves than it needs, Moody’s Analytics says.
Sixteen states—including oil and gas producers like Texas and Wyoming—have all of the funds needed to withstand the next recession while another 19 have most of the funds needed. Only nine states are positioned to withstand a severe economic slump similar to the Great Recession, according to the report.
