Stress Test Performed by Moody’s Analytics Reveals State’s Vulnerability to Next Recession

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An aerial view of the state capitol in Harrisburg.

A recent stress test conducted by Moody’s Analytics in West Chester shows that Pennsylvania is wholly unprepared for a recession, writes Dan White for the Philadelphia Inquirer.

A recession usually significantly lowers state and municipal government revenue from taxes, often resulting in public-sector employee layoffs. During the Great Recession, almost 750,000 workers lost their jobs in state and municipal government, 65,000 of them in Pennsylvania.

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Comprehensive tests by Moody’s examined how much revenue from state taxes would decline and the amount spending would rise in a hypothetical recession. It found that 35 states have already either put away the money required to either survive a moderate recession without raising taxes or making spending cuts, or by only making modest adjustments.

However, Pennsylvania has put zero in reserve to handle a downturn. This means that even a moderate recession in the next five years could hit Pennsylvanians much harder than the average American.

As it stands, if a recession came next year, Pennsylvania would need $2.3 billion in additional taxes or spending cuts just to maintain services. That would increase the taxes on every household in the state by $500 per year, three times more than the national average.

Read more about the recession test in the Philadelphia Inquirer here.

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