Conning Publishes 2022 State of the States Municipal Credit Report, Maintains Stable Outlook for State Credit Quality Despite Concerns About Inflation, Rising Interest Rates

May 19, 2022

Interactive Access to Report Data Enables Deeper Understanding of Metrics


  • Strong tax collections and unprecedented federal stimulus benefit states, although surplus spending could lower reserves and reduce recession preparedness.
  • Less favorable borrowing conditions need to be watched as well.
  • Florida, New Hampshire, and Texas break into the top five ranking bucking a historic trend toward Western and Mountain states.
  • Housing markets strengthen in West and South as Americans continue to migrate from the Northeast and Midwest–rural and suburban areas did especially well.
  • Interactive features enable a closer look at the report’s 13 metrics by state and region.

    HARTFORD, CT – May 19, 2022 –  Leading global investment management firm Conning today released its annual State of the States municipal credit research report. In this year’s report, Conning maintains a stable outlook on state credit quality, even as the U.S. grapples with inflation and rising interest rates.



    Top Five Ranked States Bottom Five Ranked States
    1. Florida 46. Kentucky
    2. Utah 47. Mississippi
    3. New Hampshire 48. West Virginia
    4. Montana 49. Maryland
    5. Texas 50 .Louisiana



    “The recovery has not been uniform,” says Karel Citroen, Head of Conning’s Municipal Research Team and lead author of the State of the States report. “Some states have benefitted from economic and population growth, none more than Florida. Conditions in other states like California and Hawaii improved significantly in 2021 after initially being hard hit by the pandemic. Going forward the focus will be on what the new work-from-home dynamics mean for tax collections and what states will do with surpluses, especially with the increased volatility in financial markets and the rising concerns of a U.S. recession in 2023.”



    The report analyzed 13 metrics indicative of state credit health to calculate and assign state rankings, with #1 being the highest and #50 being the lowest. In this year’s report, Conning also offers access to an interactive platform featuring an array of charts and illustrations, an analysis of each of the report’s metrics, a history of Conning’s overall State of the States rankings back to 2008, and a link to the company’s full 2022 report.



    States Continued to Benefit as the Economy Recovered from the Effects of the Pandemic

    State credit quality recovered quickly from the effects of the pandemic, according to Conning, driven by the economic rebound and unprecedented federal stimulus. Florida, New Hampshire and Texas broke into the State of the State report’s top five positions, but some Western and Mountain states continue to perform strongly and hold five of the top 10 overall rankings.



    Hawaii was the 2021 report’s lowest-ranked state, but its improvement by 11 places left Louisiana to fall one position to last in the latest ranking. The five lowest-ranked states suffered from issues such as weak housing-price changes relative to other states, low reserves, high debt levels, weak GDP and poor personal income performance.



    Tax revenue collections in 2021 increased 22% from 2020. Alaska had the best tax-revenue growth, benefitting from the recovery in oil prices. All states benefitted from the unprecedented federal fiscal stimulus and the normalization of consumer spending on services. States relying on leisure, travel and energy for tax revenues did especially well. Nevada and California had the strongest employment growth. Texas ranked fifth in terms of employment growth.



    States with no personal income tax such as Florida, Texas and Washington saw increases in their labor force and employment numbers. However, California, which has one of the highest personal income tax rates, also grew employment, most likely due to its strong economic recovery.



    Tennessee and New Hampshire posted the strongest growth percentage in GDP year over year while Massachusetts and New York maintained their top positions in terms of GDP per capita. Idaho ranked first in both population growth and personal income, with South Dakota and Florida rounding out the top three for personal income growth.



    Economic Activity

    Housing markets were especially strong in Arizona and Utah, benefitting from the migration from the Northeast and Midwest. The states with the largest metropolitan areas, like New York, California, Illinois, Texas and Washington, scored well in terms of GDP per capita which measures a state’s efficient use of its population.



    Florida, the report’s overall top-ranked state, has both a large population and a large GDP but it is in the bottom third of the GDP per capita ranking. For a population that is the third-largest in the country, Florida is not nearly as efficient as states like California and New York at producing an equivalent amount of goods and services, although that could be due to its large retiree population.



    Florida also joined the top five in the housing price index this year. Florida has long been a popular destination for retirees given its climate (both weather and tax) and may also now be a haven for those who can work from anywhere.



    Financial Metrics

    The extraordinary state financial windfalls of FY21 are not expected to last. For example, Illinois is projected to use up most of its FY21 reserves in FY22 to balance its budget. New Jersey and Rhode Island also have very thin reserves compared to their budget. Structural imbalances will likely lead to lower reserves and less recession preparedness.



    Resource-rich states tend to acquire large surpluses in boom years that can help cushion shortfalls when revenues decline, which is why Wyoming, North Dakota, New Mexico and West Virginia are at the top of the report’s reserves ranking.



    Strong 2021 equity markets bolstered state pension funding ratios to their highest levels since the Great Recession, but this might not be sustainable as markets are weakening. Conning has highlighted in the past how pension systems have increasingly pressured a number of state budgets, as liabilities rise and returns have declined in recent years, causing annual contributions to increase. Meanwhile, rising interest rates may also pose hardships for state borrowing needs: states are not expected to be able to borrow quickly and cheaply in capital markets or draw on the federal government for aid the way they did during the height of the pandemic.


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    About Conning’s Municipal Credit Research and State of the States Report

    Conning’s State of the States report helps the firm’s investment professionals 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, population changes, tax revenue growth, state gross domestic product growth, unemployment rates and employment growth, as well as a state’s finances and overall business environment (i.e., ability to attract new business). The findings in the 2022 edition are measured in real GDP to remove the effect of inflation and solely focus on the output of a state’s economy, a change from the last year's report.


    Conning (www.conning.comis a leading investment management firm with approximately $203 billion in global assets under management as of March 31, 2022.* With a long history of serving the insurance industry, Conning supports institutional investors, including insurers and pension plans, with investment solutions, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.


    *As of March 31, 2022, represents the combined global assets under management for the affiliated firms under Conning Holdings Limited (CHL) and Cathay Securities Investment Trust Co., Ltd. (SITE).  SITE is a separate entity under Cathay Financial Holdings Co., Ltd which is the ultimate controlling parent of all Conning entities. The CHL CEO sits on the Board of SITE and helps oversee the business. 


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