According to new research, Massachusetts would have to either raise taxes or make budget cuts to have the reserves necessary to make it through the first year of a recession.
A report from S&P Global Ratings this week estimated each state’s ability to respond to a hypothetical recession. Massachusetts was found to be at an “elevated risk” for financial distress.
If Massachusetts tax collections declined moderately, S&P said the state’s reserves could only cover 62% of the budget shortfall in the first year. In the case of a more severe recession, the state’s reserves could only cover half of the shortfall.
As of August 1st, the state had about $1.3 billion in the rainy day fund, which would be used to cover budget shortfalls if necessary.
When Governor Charlie Baker signed the budget in July, his office estimated that the rainy day fund would have about $1.78 billion by the end of 2018.
House Speaker Robert DeLeo said he was ‘very excited’ that the rainy day fund was growing, and estimated that it would be in the $2 billion range after after a $400 million deposit during this budget cycle.
It’s important to point out that this research is based on a financial “snapshot” in time, and is a “stress test” of a hypothetical situation.
No state leaders are predicting a recession any time soon.