Budget Stress Tests Help State Leaders Identify and Assess Risk (PDF)
Budget Stress Tests Help State Leaders Identify and Assess Risk
In a memo to Colorado’s Office of State Planning and Budgeting, experts from The Pew Charitable Trusts explain how budget stress tests—which examine the impact of various economic scenarios on revenues and expenditures—help states identify their risk from adverse events such as economic downturns. The memo, sent Aug. 20, 2021, outlines how states can design budget stress tests, how such tests can inform policy, and how other states have employed this fiscal tool.
In particularly challenging times, when revenue is volatile and priorities may need to be reassessed, it is important that lawmakers manage budgets effectively to mitigate fiscal stress.
Many states ended 2017 flush with unexpected cash. Federal legislation that caps some tax deductions beginning in 2018 prompted many Americans to prepay their state and local taxes. While this surprise revenue was positive news for state budgets, several policymakers struck a cautious tone.
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Data from an array of sources has shown that Americans who grow up in economically distressed areas experience lower-performing schools, higher crime rates, a variety of health and environmental hazards, and less upward mobility.
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