Preparing for the Inevitability of the Next Recession

The California State Capitol in Sacramento.

The California State Capitol in Sacramento. Shutterstock

 

Connecting state and local government leaders

Some states and localities are more ready to deal with an economic downturn than others.

Nobody knows for sure exactly when the next recession will come or how bad it will be. But it’s a fairly safe assumption that any new governor taking office in 2019 will have to deal with more challenging economic conditions during their term. California Gov. Jerry Brown recently told reporters: “It’s going to happen. We maybe have two years if we are lucky.”

After rebuilding California’s finances and his state’s economic might in recent years, Brown will be leaving office in a few months. His likely successor, Lt. Gov. Gavin Newsom, will deal with whatever comes next. But as Fitch Solutions wrote in July, California’s “next governor will benefit from structural changes made over the last decade that will heavily affect how the state's budget performs through the next inevitable recession.”

Similarly in Georgia, “the next governor owes Governor [Nathan] Deal a great debt” for the $2.5 billion in fiscal reserves his administration has built, former state House Appropriations Chairman Ben Harbin told the Atlanta Journal-Constitution last week.

When the next economic recession takes hold, the impacts will be felt in different ways depending on the state and locality. While California and Georgia may be better positioned to deal with a downturn, there are other states that aren’t in as good of shape— state government rainy day funds in places like Connecticut, New Jersey and Kansas show they are less prepared.

Officials who do budget forecasting or figure out how to finance major infrastructure projects have many variables to juggle, including being ready for the next recession when tax revenue is likely to soften or tank.

In and around booming Seattle, for instance, there are some storm clouds gathering around the voter-approved expansion of Sound Transit’s Link light-rail system. Beyond locally-raised revenue from within the Sound Transit taxing district, the expansion also assumes a certain percentage of federal contributions to finance construction, which is less certain in the Trump administration.

Sound Transit Link light rail in Seattle. (Shutterstock)

Sound Transit General Manager Peter Rogoff delivered some bad news at a Sound Transit board meeting in late July: Cost estimates for the Link extension to Federal Way have jumped by $460 million more than had been earlier forecasted, thanks in part to the increasing costs of construction—Trump’s steel tariffs have made it more expensive for state and local governments and agencies to build new or improving existing infrastructure.

Rogoff, who previously led the Federal Transit Administration during the Obama administration, said at the board meeting, according to Seattle Transit Blog: “Sound Transit has the financial strength to withstand increased project costs, or lower than anticipated federal funding or tax revenues, or a recession, but a combination of any two or more of these factors would put considerable stress on the agency’s ability to deliver projects on schedule.”

Across the country in Baltimore, officials have also expressed some concerns about what could come with a recession. City finance officials have cautioned that property tax revenue could “fall more rapidly than it did after the housing bust a decade ago,” according to the Baltimore Sun, which reported in late July that “the city has a far thinner cushion in the event home values go south again.”

In Idaho, where the state’s economy is booming, Bonneville County Chairman Roger Christensen told the Post Register recently that the county government aims to have a good fiscal reserve to tap should conditions sour. "They're healthy enough to carry us through about a year," Christensen told the Idaho Falls newspaper. "That's what we try to budget for, to have enough reserves so that if things went completely in the tank, you'd be able to run the basic operations for about a year."

When the things completely tanked a decade ago, federal officials used tools they had to try to lessen the blow and boost job growth and the economy. But when the next recession hits, the federal government will have less flexibility to assist states and localities than it did a decade ago.

As Route Fifty’s Bill Lucia reported in April:

Dan White, director of public finance research at Moody’s Analytics, said when it comes to federal assistance to states in the next recession, “I don't think they can count on getting as much as aid as they have in the past.” If this proves to be true, it will be even more important for states and local governments to plan and prepare for gloomier economic times.

“If they don't have rainy day reserve funds, enough to get them through the next recession, at this point, then they're already too late,” White added. “But any little bit can help.”

Ready or not. As the U.S. economy continues to hum along, there are inevitably choppy economic waters ahead.

Michael Grass is Executive Editor of Government Executive’s Route Fifty and is based in Seattle.

NEXT STORY: More Counties Join PILT Class-Action Lawsuit Against the Feds

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.