Moody’s Analytics estimates that Alabama would face a fiscal shock of $1.4 billion in a scenario where the COVID-19 pandemic caused a severe recession.
Moody’s Analytics, in an effort to try to provide policymakers and other stakeholders with an estimate of the potential downside implications, ran two recession scenarios through their usual state budget stress-testing methodology.
Looking at the moderate recession test, the state is better prepared than most and would still retain 2 percent of its total 2019 revenues. Alabama could operate for an estimated 35.3 days on its rainy day fund, which totaled $848 million in the fiscal year 2019.
Alabama was 1 of 17 states in the report with enough rainy day funds to be able to weather the economic impact of COVID-19 according to their moderate recession stress test.
The moderate stress test is based on a deep recession in the first half of 2020 followed by a modest rebound. The test assumes travel and business restrictions will be in effect through the late second-quarter with a peak jobless rate of 13% in 2020 Q2.
The severe stress test is based on travel and business restrictions that last into the third quarter, delaying recovery and causing more long-term disruptions and with a peak jobless rate of 17%.
Overall, Moody’s Analytics expects, at their baseline estimate, all states to have a combined fiscal shock of nearly $158 Billion dollars.
The Alabama Legislature is expected to reconvene on May 4th in order to start working on passing a budget. A move that House Minority Leader Anthony Daniels (D-Huntsville) said was fiscally irresponsible and it’s just bad public policy.
Read the full report below.StressTesting-States-04-09-20