(task) Several U.S. states unprepared for a recession: S&P | Reuters

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> http://www.reuters.com/article/us-usa-municipals-strength-idUSKCN10K2BY?il=0 <http://www.reuters.com/article/us-usa-municipals-strength-idUSKCN10K2BY?il=0>
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> Several U.S. states unprepared for a recession: S&P
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> Several U.S. states studied by S&P Global Ratings are ill-equipped to deal with an economic recession, hampered by the slow rebound in U.S. economic growth after the damage wrought by the Great Recession.
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> Fiscal imbalances, slower state tax revenue growth and increased spending on social services have contributed to a challenging economic landscape, as real GDP has only increased at 2.1 percent per year since 2009, S&P said in a report issued on Tuesday.
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> Real U.S. GDP growth of 2.43 percent in 2014 and 2015 compared to pre-recession rates of 3.79 percent in 2004 and 3.35 percent in 2005, according to data from the World Bank.
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> To determine states' fiscal capacity to withstand the first year of a hypothetical recession, S&P sampled 10 states, the report said. The study found that a collective revenue shortfall would eclipse the states' combined budget reserves by $5.4 billion.
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> Of the 10 states studied, several have budget reserves that equal less than half of "potential revenue underperformance" in the first year of a moderate-intensity recession. These include Illinois, Pennsylvania, New Jersey and Connecticut.
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> Washington, Florida and New York would fare best, with reserve balances that exceed potential shortfalls. The remaining states sampled, California, Massachusetts and Wisconsin, fall between those two groups.
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> "Fiscal alignment" is an important indicator of a state's ability to recapitalize budget reserves, the report said.
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> "Therefore, it's no coincidence, in our view, that the four states in our evaluation we found to be most fiscally vulnerable to a recession have also struggled with chronic structural budget imbalance," it said.
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> States have also raised spending on public welfare, such as Medicaid, and pension benefits. Spending on entitlements increased to 40 percent in 2013 from 34 percent in 1995 as a share of total state spending, the report said.
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> This has reduced the states' ability to finance infrastructure and higher education — pro-growth ventures, it said.
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> Britain's decision to leave the European Union in June and a slowed rate of job growth in the United States have increased economic concerns. However, it said there is still only a 20 to 25 percent chance of a recession occurring in the next 12 months.
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> (Reporting by Stephanie Kelly; Editing by Daniel Bases and David Gregorio)