During the boom years, most states stockpiled millions of dollars to pay for unemployment benefits during future downturns.

Debt at these levels also would limit budget flexibility, affecting the federal government's ability to respond to a future economic downturn or financial crisis.

"The proper thing to do is to put aside a contingency fund" for a future downturn, the Governor said.

But those deficits, along with increased borrowing in the private sector, have "significantly increased" financial vulnerability in any future downturn, the report said.

Perhaps as a hedge against a future downturn, a few far-seeing entrepreneurs are building ready-made clothing businesses abroad.

Mr. Solbes proposed giving countries that have managed to balance their budgets more room for maneuver when future economic downturns and shocks threaten growth.

He proposed legislation that would set aside money in a rainy-day fund that would help protect the state from future economic downturns.

But state leaders are trying to avoid tax increases or spending cuts in future downturns.

The other $400 million would be put in an emergency "rainy day" fund to cushion the city from future economic downturns.

The losses, they said, have cut into its capital, making it more vulnerable to a future downturn in housing prices or sharp changes in interest rates.