FAIRFAX, Virginia – Michigan’s economy has improved, but when looking at the relative strength of its Budget Stabilization Fund, one college has said Michigan is unprepared to handle the next recession.
The Mercatus Center at George Mason University in Virginia ranked all the states in terms of their ability to prepare for a recession based on the strength of their rainy day funds.
The study ranked Michigan 33rd overall in its ability to weather a recession. The state considered in the worst position to handle a recession is Illinois, the study said, although six states, including Wisconsin, have no such fund at all.
The study added that, with the end of the 2013-14 fiscal year, Michigan had a rainy day fund balance of $386 million, or roughly 3.9 percent of its General Fund revenues, roughly $1 billion short of what was needed to be able to withstand a “typical recession.”
To withstand a severe recession (the study did not describe such a recession, but the Great Recession would likely meet the definition), Michigan would need nearly the equivalent of 35 percent of its revenue in the rainy day fund, or more than $3.4 billion, a shortfall of some $3 billion.
Alaska, with nearly $15.6 billion in its rainy day fund (nearly three times its General Fund revenues), is considered the best able to withstand a recession, though the state is considering adopting an income tax because of revenue losses through the drop in oil prices.
