In 2008, at the height of the crisis, the financial condition of state-level governments in the United States began to rapidly deteriorate. Revenues — mostly in the form of tax receipts — evaporated as unemployment surged. States tapped reserves, reached out for federal support, and increased taxes. Contributions to already underfunded pensions declined even further, increasing the overall liabilities of state governments.
Five years ago, all this bad news prompted Moody’s Investors Service to downgrade the financial outlook for state governments in the U.S. from stable to negative. At the time, real gross domestic product growth in the U.S. had turned negative, and economic activity would contract for six consecutive quarters between September 2009 and December 2009. Unemployment would peak at 10 percent in October that year, shortly after the U.S. returned to a path of modest economic growth.
But even as the recession came to a technical end, growth remained anemic and uneven. Some states, like those participating in the shale gas and oil boom, have bounced back much more quickly than others. North and South Dakota have unemployment rates of 3.0 and 3.9 percent, respectively.