Fiscal resilience: Tools to manage state budgets in an age of uncertainty
When the next economic downturn comes, states will need to be more deliberate about how they manage expenditures and revenues than ever before.
An emerging theme across US states—and many regional governments in developed economies—is persistent fiscal uncertainty. Demographic change, spiraling healthcare inflation, and underfunded liabilities have placed states under unyielding fiscal pressures. A more complex and dynamic economy only serves to exacerbate these challenges. Global trade patterns, increased labor and capital mobility, and new technologies are making it harder for states to plan for the long term. In the past ten years, there has been no shortage of budget office paralysis and legislative gridlock owing to these uncertainties.
Unfortunately, paralysis and gridlock are events that few states can afford, as business cycles are notoriously difficult to predict. Too often we see these kinds of challenges taking priority over “no regrets” moves that every state could take right now to boost their resilience. Despite the fact that higher-than-expected revenues led to a generally positive fiscal 2018—and at least 30 states put money away to cover future liabilities—most states are woefully unprepared for the next economic downturn. 1 Nearly half, for example, have less money saved in rainy day funds than they did prior to the Great Recession. 2
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