Strategies for Tough Fiscal Times

Lessons Learned From Past Recessions

Recessions take a devastating toll on vulnerable children and families, pushing those on the margins of poverty over the edge and sinking others into even deeper economic distress. The research is grim: Children who fall into poverty during a recession are likely to stay there for years [i] and it takes low income families much longer than their middle and upper middle class peers to regain lost income and assets. [ii]

During past recessions, states responded by using rainy day funds, imposing “sin” taxes, raising fees, tapping trust funds and tobacco settlement awards, and securing increases in the federal Medicaid reimbursement rates. [iii] Not all of these strategies are available in 2009, and the safety net, which once helped cushion the impact of recessions, is frayed. [iv]

Causes and Characteristics of Recent Recessions

Early 1980s (1980-1982). Sharp increase in oil prices caused by regime change in Iran and tight monetary policy in U.S. to control inflation. Considered a deep recession.

· Poverty: The number of people in poverty rose by 9.2 million, and the number living below half the poverty line climbed by 5 million.

· Child Poverty: The number of children living in poverty rose by 3.5 million (36 percent increase over pre-recession level), and the number below half the poverty line climbed by 2.2 million.

· Unemployment Rate: 10.8 percent

Early 1990s (1990-1991). Another jump in oil prices caused by Iraq invasion of Kuwait. Industrial production and manufacturing trade sales decreased.

· Poverty: The number of people in poverty rose by 6.5 million, and the number living below half the poverty line rose by 4 million.

· Child Poverty: The number of children living in poverty rose by 2.6 million, and the number living below half the poverty line rose by 1.5 million.

· Unemployment Rate: 6.8%

2001-2003. Collapse of dot-com bubble and September 11 attacks. Considered a mild recession.

· Poverty: The number of people in poverty climbed by 5.5 million, and the number living below half the poverty line climbed by 3.1 million.

· Child Poverty: The number of children in poverty rose by 1.5 million, and the number living below half the poverty line rose by .8 million.

· Unemployment Rate: 5.5%

The Lingering Impact of Recession on Children and Families

· High unemployment. After the recessions of the early 1980’s and early 1990’s, it took five years for the unemployment rate to return to pre-recession levels. Even if the current recession ends in 2009, unemployment rates may not revert to the low of 4.6 percent in 2007 for years to come. [v]

· Greatest harm to the most vulnerable. In the recession of the early 1980s, the downturn most comparable to the present downturn, the number of people living below 50 percent of the poverty level rose by 5.0 million. [vi] In 2007, the poorest households still had not recovered from the 2001 recession. [vii]