States Increasingly Unprepared For Recession, Study Warns

By: - May 22, 2000 12:00 am

Five of eight states that in early 1999 had sufficient financial reserves to weather a recession have since lost those cushions due to tax cuts, according to a  Center on Budget and Policy Priorities study.

Delaware, Indiana, Massachusetts, Michigan and Minnesota would need to raise taxes if confronted with a recession similar to that of the early 1990s. That’s the conclusion of When It Rains It Pours — One Year Later.

The most dramatic change took place in Massachusetts, which would face a relatively modest shortfall of 2.7 percent of spending in a projected three-year recession, the report said.

“The intent of the report is not to say that each state must have the full amount of needed reserves on hand at all times,” Center Deputy Director Iris Lav said. Rather, the goal is to help states avoid what Lav termed “yo-yo budgeting — tax increases and budget cuts during recession, followed by tax cuts during recovery.”

The Center on Budget and Policy Priorities is a liberal, national nonpartisan research organization focused on policies and programs affecting low- and moderate-income households.

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