Jerry Brown

Gov. Jerry Brown carries notebook paper after unveiling his proposed 2016-17 state budget at the Capitol on Jan. 7. Brown warned that the state is overdue for a recession and needs to build reserves to cushion the effects of an economic downturn. (Renée C. Byer – rbyer@sacbee.com)

Capitol Alert
By Dan Walters
dwalters@sacbee.com
April 22, 2016 – 2:51 PM

  • Texas shines in ability to absorb a recession
  • California and Illinois at the bottom

California, whose state budget is highly dependent on volatile income taxes, is the least able big state to withstand a recession, according to a “stress test” conducted by Moody’s Investor Service.

Arch-rival Texas, meanwhile, scores the highest on the test because of “lower revenue volatility, healthier reserves relative to a potential revenue decline scenario and greater revenue and spending flexibility,” Moody’s, a major credit rating organization, says.

Among major states, New York, Pennsylvania and Florida fall somewhere between California and Texas.

Moody’s report could help Gov. Jerry Brown this year as he resists pressure from fellow Democrats in the Legislature to increase spending, particularly for health, social and pre-school services, and pump more revenue into a “rainy day fund” that voters, at his behest, created in 2014.

Brown has frequently voiced fears that the state is overdue for another recession, and without a hefty cushion, could be forced to make deep spending cuts if one hits.

Moody’s notes that because of its dependence on personal incomes taxes, especially those from high-income residents, California saw a 17 percent General Fund revenue drop when recession hit in 2002 and a 12 percent decline in 2009 when another struck the state.

Conversely, it also recorded the greatest one-year revenue increase, 20.3 percent, of any of the large states, also thanks to income taxes.

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