Conning Releases Latest Semi-Annual State of the States Municipal Credit Report and Rankings (Q4, 2014)

November 18, 2014

Conning Releases Latest Semi-Annual State of the States Municipal Credit Report and Rankings (Q4, 2014)

Top Line Summary of Key Findings:

•Conning has an Improving Outlook on State Credit Quality Overall

•Economic Growth is Bolstering State Revenues Overall

•General Fund Balances Recovered for Most States, but a Few are Still Struggling

•“Fly Over” States are Generally Prospering

•Illinois and New Jersey Still Lagging in Credit Improvement

HARTFORD, CT – November 18, 2014 – According to its most recent semi-annual State of the States Municipal Credit Research report (Q4, 2014), insurance asset manager Conning sees improvement in aggregate state credit quality due to economic growth bolstering state revenues which has led to increases in fund balances for most states. While strong employment growth, higher consumer confidence, and improved housing prices are driving up revenue, the improvement is not uniform across all states. Legacy costs, which are a key credit determinant, vary dramatically by state. 

The most recent semi-annual State of the States Municipal Credit Research report ranks the credit quality of all 50 states and is used to help guide the asset management firm’s municipal bond investment decisions. As a key differentiator, Conning’s State of the States Municipal Credit Research report places added emphasis on economic debt, not just stated debt.

States at the Top and Improving States

There is a clear trend of credit strength in states with a high component of natural resource extraction in the economy. States such as North Dakota, Montana, Texas and Florida continue to dominate the ranks due to pro-business climates, strong job growth, and lower debt burdens than their coastal and Midwestern peers. “We’ve also seen relative credit improvement in several midsized states, including West Virginia, Indiana, Michigan, and Missouri,” said Paul Mansour, Managing Director, head of Conning’s municipal credit research group and lead author of the report. “These states are improving due to a combination of positive progress in reducing debt burdens, lower unemployment, and better state output.”

States Facing Budget Pressures

Some of the weakest states show a modest clustering in the mid-Atlantic region, with New Jersey, New York, Pennsylvania, Connecticut, and Rhode Island all represented. “Most of these states share the common problem of high fixed cost burdens and sluggish economies, but their ongoing credit challenges are more idiosyncratic,” said Mansour. New Jersey continues to suffer from a very high debt load and expenditure burden, dropping from 45th to 49th in the rankings. For Illinois, employment growth continues to lag that of other states.  Since Conning’s last report, both its economic debt and expenditure burden, including unfunded pensions, have grown worse, while its General Fund reserves are at a very low level.  

General Fund Balances Dragging Down State Economies

General fund balances include both a state’s ending general fund balance and its budget reserve or “Rainy Day” balance. Budget reserves provide revenue flexibility that states rely on during recessions. While general fund balances have recovered for most states, several states including Illinois, New Jersey, and Pennsylvania have virtually no fund balances, creating greater risk for credit stress. In the event of another recession, these states would suffer considerably if unable to rebuild fund balances.

A More Forward Thinking Analysis 

The goal of Conning’s State of the States report is to be an accurate predictor of future state credit quality, and it is used by Conning to help make better-informed credit decisions and improve relative value for client portfolios. State of the States indicators include measures of economic activity, such as income levels, housing prices, foreclosure rates, as well as a state’s overall business environment (i.e., ability to attract new business).  Economic debt includes direct debt, unfunded pension liabilities, unfunded Other Post-Retirement Benefits, and federal borrowings for state unemployment benefit obligations. 

About Conning

Conning ( is a leading investment management company for the global insurance industry, with almost $92 billion in assets under management as of September 30, 2014, through Conning, Inc., Conning Asset Management Limited, Cathay Conning Asset Management Limited, Goodwin Capital Advisers, Inc., and Conning Investment Products, Inc. The company's unique combination of asset management, risk and capital management solutions and insurance research helps clients achieve their financial goals through customized business and investment strategies. Founded in 1912, Conning provides clients with innovative solutions, leveraging its global capabilities, investment experience, proprietary research and risk management technology. Headquartered in Hartford, Connecticut, Conning also delivers its services globally through its offices in New York, London, Cologne and Hong Kong.