Earlier this year, we started to hear about a mysterious virus popping up in China. At that time, I never would have imagined that Utah Gov. Gary Herbert would be declaring a state of emergency, and the University of Utah, where I work and teach, would be moving classes online for more than 30,000 students in response to a global pandemic.
While public health is of utmost concern, there is a great deal of unease around the economic impacts of the unfolding pandemic. As an economist, I've been fielding a lot of questions about these potential impacts. It's looking more and more like a global recession is inevitable, but only time will tell how monetary and fiscal policy responses will mitigate impacts in the U.S.
Like any honest economist, I admit that I am unable to predict the full magnitude and reach of the economic disruption of the outbreak once it has run its course. The one prediction that I can make with confidence is that, because of wise fiscal stewardship and preparations, Utah's governor and legislators stand ready to manage the economic repercussions of COVID-19 better than any other state in the nation.
I make this prediction with over a decade of experience working in Utah's legislative and executive budget offices as well as research I've done at the University of Utah with the Pew Charitable Trusts and Volcker Alliance comparing state fiscal practices.
Should the economy contract, Utah is well-positioned to protect critical public services like education, public safety, transportation, and public health and social safety-net programs for three primary reasons:
- Utah is on top of its long-term liabilities. Ten years into an economic expansion, many states still face a pension crisis on account of a long-term trend of inadequate funding and losses in the last recession. Utah is a leader in pension reforms that reduced pension liabilities and, unlike many other states, has always funded the full contribution amount required to ensure that assets will be sufficient to cover future benefits. This means that Utah's pension plans are better able to handle the emerging bear market and less likely to require significant funding increases in a deteriorating economic situation.
- Utah has saved for a rainy day. The state's formal budget reserve accounts now total almost $900 million, nearly double the balances leading into the 2008 recession. In the event of a downturn, in addition to formal reserves, the state has more than $1 billion in "working rainy day funds," including operating reserves, fund balances, and ongoing funding in one-time capital projects that lawmakers could redirect. Such a large cushion means that Utah should be able to avoid drastic, disruptive budget cuts should revenue collections go south.
- Utah budget makers have turned lessons learned from the Great Recession into actionable plans for another downturn. Utah was the first state to develop and implement a budget stress testing program, assessing our state's ability to address both recession-spurred revenue shortfalls and cost hikes. The most recent test confirms that Utah's budget is well-prepared for an economic downturn. More importantly, stress testing has required budget makers to inventory and contemplate the feasibility of all potential reserves and contingencies beyond traditional rainy day funds. Having developed this "fiscal toolkit" in advance means that policymakers can avoid crisis-driven decisions in the event of an economic contraction.
The effects of COVID-19 will touch all of us in some way, whether it be our physical, mental, or economic health. Wash your hands, make informed health and financial decisions, look after your neighbors, and have confidence that Utah’s fiscal house is in order during these unprecedented times.
Juliette Tennert is chief economist at the Kem C. Gardner Policy Institute of the University of Utah.