The states that are best prepared to weather the next recession

We’d like to think we can avoid another recession, but we can’t. Economic expansion followed by a recession is simply the way things work in a capitalist society.

Since we know it’s not a question of if, but rather when, a recession hits, we all need to be prepared. For families, that means having an adequate emergency fund. For states, it requires putting enough into reserves to ride out a downturn.

Moody’s Analytics analyzed state reserves to see how well they would weather a moderate recession. The group compared actual reserves, as a percentage of state revenues, with the necessary reserves a state would require to comfortably withstand an economic downturn. (How much a given state needs to hold in reserve varies depending on particular economy and tax structure.) While 16 states are looking good and 19 states could probably squeak by, there are 15 states that are going to be in serious trouble if we have a recession in the next one to two years.

Here’s a ranking of all 50 states — starting with those best prepared for recession according the reserves that they hold and ending with states that need to start saving ASAP. Find out where your state stands.

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States that are best prepared to weather the next recession
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States that are best prepared to weather the next recession

1. Alaska

Difference between actual and necessary reserves: 190.8 percent

Alaskans can rest easy knowing their state is in prime condition to withstand a recession — or two or three. The country’s northernmost state has far and away the largest stash in its coffers. That’s likely because it relies heavily on taxes from the commodity market, which is prone to volatility — so that means the state is also vulnerable to a large fiscal shock.

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2. Wyoming

Difference between actual and necessary reserves: 84.4 percent

While Wyoming doesn’t have nearly the same excess of reserves as Alaska, it is still in good shape to weather a recession. It has significantly more in reserves than it will likely need in a moderate downturn.

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3. West Virginia

Difference between actual and necessary reserves: 15.1 percent

Coming in a distant third is West Virginia. Although its surplus is far less than that of Alaska and Wyoming, it should still be enough to let the state move comfortably through the next recession.

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4. Texas

Difference between actual and necessary reserves: 10 percent

Everything is bigger in Texas, including its cash reserves. The state has a 10 percent surplus over the amount Moody’s says it would need in a moderate recession.

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5. Nebraska

Difference between actual and necessary reserves: 9.6 percent

While some of its neighbors aren’t positioned quite as well, Nebraska has done a good job of preparing for a recession. It has a 9.6 percent surplus in its reserves.

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6. South Dakota

Difference between actual and necessary reserves: 3.5 percent

Once you get past the top five states on this list, the size of surplus reserves begins to dwindle significantly. South Dakota only has an extra 3.5 percent set aside, but Moody’s says the state should still be OK in a moderate recession.

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7. Tennessee

Difference between actual and necessary reserves: 3.3 percent

In Tennessee, the state has put an extra 3.3 percent aside in reserves beyond what it needs to weather a moderate recession.

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8. Indiana

Difference between actual and necessary reserves: 3.2 percent

Right now, Indiana has 3.2 percent extra in its reserves, but that amount could possibly grow. The state is expected to see its economy grow faster than the national average in 2018, according to Indiana University economists.

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9. Oregon

Difference between actual and necessary reserves: 2.2 percent

In the West, Oregon is among the states best positioned to endure a recession. Its reserves are 2.2 percent more than needed.

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10. Delaware

Difference between actual and necessary reserves: 2.1 percent

Some East Coast states will be in trouble if a moderate recession hits, but not Delaware. The state has a 2.1 percent surplus in its reserves.

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11. Hawaii

Difference between actual and necessary reserves: 1.8 percent

Sunny days are ahead for Hawaiians, even if the economy should sour. The state has a small surplus tucked away to help it ride out a moderate recession.

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12. Washington

Difference between actual and necessary reserves: 1 percent

Washington state has a surplus in its cash reserves, but just barely. It has 1 percent more in its coffers than it is expected to need in a moderate recession.

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13. Minnesota

Difference between actual and necessary reserves: 0.9 percent

Minnesota is the final state on this list with more in its reserves than it would need to survive a recession. That surplus is a mere 0.9 percent, but it is extra money nonetheless.

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14. North Carolina

Difference between actual and necessary reserves: -0.3 percent

According to Moody’s Analytics, North Carolina doesn’t have quite enough in its reserves to weather a moderate recession. However, its 0.3 percent deficit is so small that the state still gets a green light from the financial firm. It should do OK if the economy takes a turn for the worse, Moody’s says.

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15. New York

Difference between actual and necessary reserves: -0.9 percent

New York is another state that has a deficit but is still considered well-prepared for a moderate recession. New Yorkers should expect their state to comfortably make it through the next downturn.

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16. Nevada

Difference between actual and necessary reserves: -1 percent

As the final state considered well-prepared for a moderate recession, Nevada has a 1 percent deficit in its reserves.

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17. Alabama

Difference between actual and necessary reserves: -1.1 percent

From here on, states are bordering on dangerous fiscal territory. These states, starting with Alabama, aren’t in terrible shape, but they may have to tighten their belts with budget cuts or consider raising revenue through taxes and fees in order to weather a moderate recession.

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18. Ohio

Difference between actual and necessary reserves: -1.4 percent

Ohio’s rainy day fund has come a long way since 2011, but it’s still 1.4 percent below what is needed. In the face of a slow economy, some Ohioans have called for tapping into the reserve while other lawmakers argue it’s better to make budget cuts.

 

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19. Iowa

Difference between actual and necessary reserves: -1.4 percent

In America’s Heartland, the State of Iowa needs to only put an additional 1.4 percent of its revenues into reserves. That’s better than many states on this list, but not good enough for the state to withstand a moderate recession without fiscal disruption.

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20. Georgia

Difference between actual and necessary reserves: -1.6 percent

Down in Georgia, the state’s actual reserves fall short of its necessary reserves by 1.6 percent.

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21. South Carolina

Difference between actual and necessary reserves: -2.3 percent

South Carolina isn’t doing quite as well as its neighbor to the north. The state needs to add 2.3 percent of its revenues to its reserves if it wants to weather a moderate recession comfortably.

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22. Florida

Difference between actual and necessary reserves: -2.7 percent

The situation isn’t quite as sunny as it could be in Florida, where the state has a 2.7 percent deficit in the reserves it would need to prevent fiscal disruption in the next recession.

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23. New Hampshire

Difference between actual and necessary reserves: -2.8 percent

New Hampshire is one of several New England and East Coast states in the middle of the pack. Its deficit isn’t large enough to be overly alarming, but it wouldn’t hurt if the state were to put a little more aside for that inevitable rainy day.

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24. Rhode Island

Difference between actual and necessary reserves: -2.8 percent

The situation is the same in Rhode Island as New Hampshire. The 2.8 percent difference between the state’s actual reserves and necessary reserves shouldn’t spark panic, but it isn’t anything to be proud of either.

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25. Maine

Difference between actual and necessary reserves: -2.9 percent

According to figures from last year, Maine has the slowest-growing economy among the New England states. That might be motivation for lawmakers to consider whether they can buff up the state’s fiscal reserves before things take a turn for the worse.

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26. Utah

Difference between actual and necessary reserves: -3.2 percent

Utah is right in the middle of the pack with a 3.2 percent deficit between the reserves it has and what it needs to weather a recession.

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27. Maryland

Difference between actual and necessary reserves: -3.5 percent

In Maryland, the deficit between actual and needed reserves is 3.5 percent. Moody’s Analytics used a model that assumes one to two years before the next recession is likely to hit, so there’s still time for Maryland, and other deficit states, to boost their savings.

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28. Massachusetts

Difference between actual and necessary reserves: -3.8 percent

The economy in Massachusetts had a slow start in 2017, but it seems to be full-steam ahead now. That’s good news for lawmakers, who may be hoping to find extra money to address the 3.8 percent deficit in the state’s reserves.

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29. Michigan

Difference between actual and necessary reserves: -4.2 percent

Michigan could weather a moderate recession if it wants to cut its budget or raise revenues. If it doesn’t want to go that route, it should consider putting more money into reserves, which are 4.2 percent below what it needs.

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30. Idaho

Difference between actual and necessary reserves: -4.3 percent

The rainy day fund in Idaho is 4.3 percent short of what that state needs to sustain its economy through a moderate recession.

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31. Montana

Difference between actual and necessary reserves: -4.5 percent

As one of the 19 states highlighted by Moody’s as falling in the midrange of preparedness for moderate recession (those with reserve deficits of 1 to 5 percent), Montana needs to add 4.5 percent to its rainy day fund to have the reserves needed to avoid fiscal disruption.

 

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32. Mississippi

Difference between actual and necessary reserves: -4.8 percent

Mississippi’s economy lags behind that of the nation, which may be why that state hasn’t put more of its revenues into its reserve. Mississippi’s rainy day fund falls 4.8 percent short of being able to weather a moderate recession.

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33. Wisconsin

Difference between actual and necessary reserves: -4.8 percent

Farther north, Wisconsin also has a 4.8 percent deficit between its actual reserves and what it would need to weather a recession. According to Moody’s, that means the state will need a combination of fund balances and fiscal action to be prepared to withstand the fiscal shocks to come.

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34. California

Difference between actual and necessary reserves: -4.8 percent

California has the fifth-largest economy in the world, and according to Moody’s the state needs 10.7 percent of its budget in reserves to comfortably weather a moderate recession. Right now, it’s 4.8 percent short of that goal.

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35. Kentucky

Difference between actual and necessary reserves: -4.9 percent

Kentucky is the very last of the states classified by Moody’s in the midrange of preparedness, with from 1 to 5 percent deficits. That means the state can scrape by in a moderate recession with some belt-tightening, but it’s very close to the danger zone if the economy takes a nosedive.

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36. Connecticut

Difference between actual and necessary reserves: -6.1 percent

As the first in the third tier of states — defined by Moody’s as those substantially unprepared for a moderate recession and facing potential fiscal shock — Connecticut has a 6.1 percent deficit in its reserves.

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37. Arkansas

Difference between actual and necessary reserves: -6.7 percent

Moody’s notes that Arkansas has a relative stable tax structure and economic base, which means it only needs 6.7 percent of its budget in its reserve fund. Unfortunately, that is 6.7 percent more than the state currently has set aside. According to Moody’s, the Arkansas rainy day fund currently sits empty.

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38. Arizona

Difference between actual and necessary reserves: -6.7 percent

Arizona does have some money in its rainy day fund, but the current balance is 6.7 percent shy of what it would need to ride out a moderate recession without fiscal disruption.

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39. Vermont

Difference between actual and necessary reserves: -7.1 percent

Over in New England, Vermont is at the bottom of the barrel, reserve-wise anyway. The state is 7.1 percent short of what it would need in the event of a moderate downturn in the economy. That’s the biggest deficit in the Northeast region.

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40. Virginia

Difference between actual and necessary reserves: -7.5 percent

In Virginia, the state needs to add 7.5 percent of its budget to its reserves if it wants to comfortably cover the economic disruption of a recession.

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41. Kansas

Difference between actual and necessary reserves: -7.6 percent

The Midwest is home to a few states that could be in trouble should the economy sour. Kansas is one of those, with a 7.6 percent deficit between its actual reserves and its needed reserves.

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42. Missouri

Difference between actual and necessary reserves: -8.4 percent

The Show-Me State may want to show its rainy day fund a little more love. It currently sits at 8.4 percent below where it should be if the state hopes to successfully weather the economic impact of a moderate recession.

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43. Pennsylvania

Difference between actual and necessary reserves: -8.8 percent

Pennsylvania is one of only two states that currently has a negative actual reserve. It’s 1.8 percent in the hole. The state needs to set aside 8.8 percent of its budget to get the fund out of the red and add enough to cushion a recession. Moody’s saysPennsylvania’s woes can be attributed partly to Medicaid spending, which accounts for 40 percent of the state’s budget.

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44. New Jersey

Difference between actual and necessary reserves: -9.6 percent

With a deficit of 9.6 percent, it may be too late for New Jersey to boost its reserves before the next recession hits.

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45. Colorado

Difference between actual and necessary reserves: -9.8 percent

Overall, Colorado’s economy is doing relatively well, so it’s a bit surprising state lawmakers haven’t set more aside for a rainy day. The state falls 9.8 percent below the reserves needed to be prepared for a moderate recession.

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46. Illinois

Difference between actual and necessary reserves: -10.7 percent

Illinois has the unfortunate distinction of being the first state with a double-digit deficit in the reserves it would need to weather a moderate recession without significant financial disruption.

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47. New Mexico

Difference between actual and necessary reserves: -11.1 percent

As the only other state with a negative rainy day fund, New Mexico needs to make up an 11.1 percent deficit to get its reserves out of a 1.1 percent hole and build the needed 10 percent reserves to be ready for the next recession.

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48. Oklahoma

Difference between actual and necessary reserves: -12.1 percent

Oklahoma has the fifth-worst economy in the nation, according to Fox News citing a report by WalletHub. That may be why it has such meager reserves.

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49. North Dakota

Difference between actual and necessary reserves: -19.4 percent

North Dakota should take a cue from its neighbor to the south and focus a little more on building up its rainy day fund. According to Moody’s, the state should have 20.1 percent of its revenues set aside to weather a moderate recession. However, its reserves currently stand at a mere 0.7 percent.

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50. Louisiana

Difference between actual and necessary reserves: -24 percent

No one wants to be in last place, but there you are, Louisiana. Some people blame your former governor, but it could just be that you have a lousy economy. Whatever the reason, the reality is that your residents better hope a recession doesn’t come soon. You have a lot of catching up do if you want to be ready for when times get tough again.

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