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State Of Concern: The 5 States Most Unprepared For A Recession

 

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Recession. It’s a word that can strike in the heart of businesses and banks, buyers and sellers, cities and states. Fortunately, most states budgets are faring better now than they were before the last recession hit, mostly thanks to steady employment growth and the subsequent rise in tax revenue.

Learning from the economic hardships of the last recession, many states have established rainy-day funds that will help them ride out the next recession; about 50 percent of states in the country have sufficient funds to successfully ride out an economic downturn like the 2001 tech bust. Some states, however, have little savings or are overly reliant on budget revenues that depend heavily on income taxes or levies on energy production.

The following five states are the most vulnerable when it comes to weathering a recession.

1. LOUISIANA

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Percentage Points Short Of Rainy-Day Funding Need: 15

Because the Bayou State depends heavily on oil and gas revenues, it could take a big hit when a recession causes energy prices to fall due to lower demand. With reserves that are only 4% of the state’s general fund, Louisiana falls well short of the nearly 19% cushion that’s needed to lessen the financial pain and strain that comes with a recession.

2. ILLINOIS

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Percentage Points Short Of Rainy-Day Funding Need: 9

The Prairie State might be putting its head in the sand, just like a prairie dog, when it comes to assessing its fiscal strength. The state’s reserves come in at a measly 1.6%. Building budget reserves have been difficult owing to a high level of debt, a severe pension funding shortfall, and budget gridlock.

3. ARKANSAS

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Percentage Points Short Of Rainy-Day Funding Need: 7

Maintaining budget reserves has a long history of being on the back burner in Arkansas. Although the state initiated building a reserve fund in 2016, the fund remains capped at a mere 3% of the entire state budget.

4. KENTUCKY

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Percentage Points Short Of Rainy-Day Funding Need: 7

Unfortunately, the Bluegrass State could be singing the blues when the next recession hits: Kentucky is vulnerable because its reserve balance is just 3% of the state’s general fund. Adding to its precarious budget: The state employees’ pension fund is just 16% funded, the lowest funding level of any large public pension in the country. Because this funding level creates demands on future revenues, Kentucky finds it difficult to build reserves.

5. NEW JERSEY

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Percentage Points Short Of Rainy-Day Funding Need: 7

Funds that can help offset the next recession aren’t growing in the Garden State. Reserves account for only 3% of New Jersey’s general fund, and the fund may not be increasing anytime soon. The state pays the fourth-highest debt service, totaling $4 billion per year, after California, New York, and Illinois. In addition, public pensions are woefully underfunded.

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Sandra Murphy

Sandra Murphy

Holds a master's degree in professional writing and has more than 15 years of experience writing for national and international entities.

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