State Revenue Growth Slows, but Most States Classified as ‘Stable’
Morgan Stanley Investment Management (MSIM) has released its 12th annual State of the States Report, revealing a slowdown in state revenue growth following two years of pandemic-stimulated expansion. The report indicates a stable credit outlook for most states, despite planned budget cuts of approximately 6% in the next fiscal year.
Key findings show state debt remains generally low, with rainy day fund balances at all-time highs - median state at 13% of expenditures in 2024, projected to reach 15% in 2025. However, five states have lower reserves than in 2007. While debt and unfunded pension burdens have declined due to GDP growth and reforms, pension liabilities remain substantial. Medicaid costs significantly impact state budgets, particularly affecting Colorado, Missouri, Arizona, Pennsylvania, Connecticut, and Kentucky.
The report notes that only 25% of states have better-funded pensions compared to 2018, potentially limiting flexibility for other spending. Puerto Rico stands as an outlier with a 59% liabilities-to-GDP ratio, nearly double that of any other state.
Morgan Stanley Investment Management (MSIM) ha pubblicato il suo 12° rapporto annuale sullo Stato degli Stati, rivelando un rallentamento nella crescita delle entrate statali dopo due anni di espansione stimolata dalla pandemia. Il rapporto indica un outlook creditizio stabile per la maggior parte degli stati, nonostante i previsti tagli al bilancio di circa il 6% nel prossimo anno fiscale.
I risultati principali mostrano che il debito statale rimane generalmente basso, con saldi dei fondi di emergenza ai massimi storici - il valore mediano per gli stati è del 13% delle spese nel 2024, previsto per raggiungere il 15% nel 2025. Tuttavia, cinque stati hanno riserve inferiori rispetto al 2007. Sebbene il debito e i pesi delle pensioni non finanziate siano diminuiti grazie alla crescita del PIL e alle riforme, le passività pensionistiche rimangono sostanziali. I costi Medicaid influenzano significativamente i bilanci statali, colpendo in particolare Colorado, Missouri, Arizona, Pennsylvania, Connecticut e Kentucky.
Il rapporto nota che solo il 25% degli stati ha pensioni finanziate meglio rispetto al 2018, limitando potenzialmente la flessibilità per altre spese. Porto Rico si distingue come un'eccezione con un rapporto passività/PIL del 59%, quasi il doppio rispetto a qualsiasi altro stato.
Morgan Stanley Investment Management (MSIM) ha presentado su 12° informe anual sobre el Estado de los Estados, revelando una desaceleración en el crecimiento de los ingresos estatales después de dos años de expansión impulsada por la pandemia. El informe indica un perspectiva crediticia estable para la mayoría de los estados, a pesar de los recortes presupuestarios planeados de aproximadamente el 6% en el próximo año fiscal.
Los hallazgos clave muestran que la deuda estatal se mantiene generalmente baja, con saldos de fondos de emergencia en máximos históricos - la mediana estatal es del 13% de los gastos en 2024, proyectando alcanzar el 15% en 2025. Sin embargo, cinco estados tienen reservas más bajas que en 2007. Aunque la deuda y las cargas de pensiones no financiadas han disminuido debido al crecimiento del PIB y las reformas, las obligaciones de pensiones siguen siendo sustanciales. Los costos de Medicaid impactan significativamente los presupuestos estatales, afectando particularmente a Colorado, Missouri, Arizona, Pennsylvania, Connecticut y Kentucky.
El informe señala que solo el 25% de los estados tiene pensiones mejor financiadas en comparación con 2018, limitando potencialmente la flexibilidad para otros gastos. Puerto Rico se destaca como un caso atípico con un ratio de obligaciones sobre PIB del 59%, casi el doble que cualquier otro estado.
모건 스탠리 투자 관리(MSIM)는 12번째 연례 주 보고서를 발표하며, 팬데믹으로 촉진된 확대 이후 주 정부 수익 성장의 둔화를 밝혔습니다. 이 보고서는 대부분의 주에 대한 안정적인 신용 전망을 나타내지만, 내년 예산에서 약 6%의 감축이 계획되어 있습니다.
주요 발견은 주의 채무가 일반적으로 낮게 유지되고 있으며, 비상 기금 잔액이 역대 최고 수준에 도달했다는 것입니다 - 2024년 주 평균은 지출의 13%이며, 2025년에는 15%에 이를 것으로 예상됩니다. 그러나 다섯 개 주는 2007년보다 더 낮은 준비금을 가지고 있습니다. 채무와 미지급 연금 부담이 GDP 성장과 개혁 덕분에 감소했지만, 연금 책임은 여전히 상당합니다. 메디케이드 비용는 주 예산에 상당한 영향을 미치며, 특히 콜로라도, 미주리, 애리조나, 펜실베이니아, 코네티컷 및 켄터키에 영향을 줍니다.
보고서는 2018년과 비교했을 때, 단지 25%의 주들만이 더 잘 자본화된 연금을 보유하고 있어, 다른 지출에 대한 유연성을 제한할 가능성이 있다고 언급합니다. 푸에르토리코는 59%의 채무 대비 GDP 비율로 독특한 경우로, 이는 다른 어떤 주보다 두 배에 가까운 수치입니다.
Morgan Stanley Investment Management (MSIM) a publié son 12° rapport annuel sur l'État des États, révélant un ralentissement de la croissance des revenus des États après deux années d'expansion stimulée par la pandémie. Le rapport indique une perspective de crédit stable pour la plupart des États, malgré des coupes budgétaires prévues d'environ 6% au cours du prochain exercice.
Les principales conclusions montrent que la dette des États reste généralement faible, avec des saldos de fonds d'urgence à des niveaux historiques - la médiane des États étant de 13% des dépenses en 2024, avec une prévision d'atteindre 15% en 2025. Cependant, cinq États affichent des réserves inférieures à celles de 2007. Bien que la dette et les charges de pension non financées aient diminué grâce à la croissance du PIB et aux réformes, les obligations de pension demeurent considérables. Les coûts de Medicaid impactent significativement les budgets des États, affectant particulièrement le Colorado, le Missouri, l'Arizona, la Pennsylvanie, le Connecticut et le Kentucky.
Le rapport note que seulement 25% des États ont des pensions mieux financées par rapport à 2018, ce qui pourrait limiter la flexibilité pour d'autres dépenses. Porto Rico se distingue comme une exception avec un ratio de 59% de passifs par rapport au PIB, presque le double de tout autre État.
Morgan Stanley Investment Management (MSIM) hat seinen 12. jährlichen Bericht über den Stand der Bundesstaaten veröffentlicht, der eine Verlangsamung des Wachstums der Staatsausgaben nach zwei Jahren pandemiebedingtem Wachstum aufzeigt. Der Bericht weist auf einen stabilen Kreditausblick für die meisten Bundesstaaten hin, trotz geplanter Haushaltskürzungen von etwa 6% im nächsten Haushaltsjahr.
Die wichtigsten Erkenntnisse zeigen, dass die Staatsverschuldung insgesamt niedrig bleibt und die Rücklagen der Notfallfonds ein Allzeithoch erreicht haben - der mediane Bundesstaat liegt 2024 bei 13% der Ausgaben, voraussichtlich 2025 bei 15%. Fünf Bundesstaaten haben jedoch niedrigere Rücklagen als 2007. Während die Schulden und die nicht finanzierten Pensionsverpflichtungen aufgrund des GDP-Wachstums und von Reformen gesenkt wurden, bleiben die Pensionsverpflichtungen erheblich. Die Medicaid-Kosten haben einen signifikanten Einfluss auf die Staatsbudgets, insbesondere in Colorado, Missouri, Arizona, Pennsylvania, Connecticut und Kentucky.
Der Bericht stellt fest, dass nur 25% der Bundesstaaten besser finanzierte Pensionen im Vergleich zu 2018 haben, was die Flexibilität für andere Ausgaben potenziell einschränken könnte. Puerto Rico hebt sich als Ausnahme mit einem Verhältnis von 59% Verbindlichkeiten zu GDP hervor, fast doppelt so hoch wie bei jedem anderen Bundesstaat.
- Rainy day fund balances at all-time highs (13% of expenditures, projected 15% by 2025)
- Generally low state debt levels
- Decline in debt and unfunded pension burdens due to GDP growth
- Most state budgets well-positioned to address debt, pension, and OPEB expenses
- Slowing revenue growth requiring ~6% budget cuts next fiscal year
- Five states have lower reserves compared to 2007 levels
- Only 25% of states have better funded pensions than in 2018
- Rising Medicaid costs significantly impacting state budgets
- Large overall pension liabilities despite recent over-contributions
Insights
The latest State of the States Report from Morgan Stanley Investment Management presents critical insights for municipal bond investors and institutional stakeholders. The planned 6% budget cuts across states amid slowing revenue growth signals a prudent fiscal approach rather than a deteriorating environment, supported by historically high rainy day funds at 13% of expenditures.
Several key metrics warrant investor attention: First, the robust rainy day fund levels provide a substantial buffer against economic downturns, significantly exceeding pre-2008 crisis levels. However, the report's revelation that five states have lower reserves than in 2007 raises red flags about their fiscal resilience.
The declining debt and pension burdens, primarily driven by GDP growth and investment returns, mask underlying structural challenges. The fact that only 25% of states have improved their pension funding since 2018 suggests that recent market gains haven't translated into widespread pension health improvement. This could present long-term risks, particularly if market conditions deteriorate.
Of particular concern is the growing impact of Medicaid expenses, especially in states like Colorado, Missouri, Arizona, Pennsylvania, Connecticut and Kentucky. These mandatory expenditures could constrain fiscal flexibility and potentially affect credit quality in these jurisdictions. The situation in Puerto Rico, with its 59% liabilities-to-GDP ratio, serves as a cautionary tale of unchecked fiscal deterioration.
For investors, these findings suggest the need for increased selectivity in municipal bond portfolios. States with strong rainy day funds, manageable Medicaid expenses and improving pension metrics may command premium valuations, while those facing multiple challenges might see spread widening in their securities.
Morgan Stanley Investment Management releases annual State of the States Report
Commenting on the report’s finding, Craig Brandon, co-head of Municipal Investing for MSIM, said: “While we believe most states are on solid footing, there are several critical factors looming that will have long-term implications for states’ creditworthiness and ability to respond to shifting market dynamics. Unfunded pension liabilities and increasing Medicaid costs continue to challenge state budgets, while natural disasters continue to have an outsized impact not only on budgets but also future planning. Additionally, out-migration and demographic shifts are two issues that warrant close examination.”
The States of the States Report reveals that state debt generally remains low as many states curtailed borrowing after the Great Recession and experienced increasing state gross domestic product (GDP). Rainy day fund balances, a strong indicator of how prepared each state is for recessions and economic downturns, are at all-time highs with the median state at
“Understanding how states rank from a credit standpoint influences portfolio decisions,” said Brandon. “With a new Presidential Administration and uncertainty related to the potential extension of the Tax Cuts and Jobs Act, this analysis pinpoints areas of strength and deficiencies, and helps us identify which states are positioned to address policy changes, demographic shifts and unforeseen events that tap into state agencies and budgets and leverage infrastructure resources.”
Key findings:
- Debt and unfunded pension burdens largely declined due to GDP growth, investment returns and pension reforms. However, overall pension liabilities remain large despite many states over-contributing to their plans in recent years.
- Most state budgets are well-positioned to address debt, pension and Other Post-Employment Benefits (OPEB) expenses, however these expenses could crowd out other spending initiatives if paid in full.
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Puerto Rico remains a significant outlier; its59% liabilities-to-GDP ratio is nearly double that of any other state. -
Medicaid costs play a significant role in state budgets and dwarf other fixed-cost spending; this is particularly acute for
Colorado ,Missouri ,Arizona ,Pennsylvania ,Connecticut andKentucky . - Only one quarter of states have better funded pensions now than they did in 2018, which means less well-funded pensions states have less flexibility for other necessary spending.
Developed by the municipal research team, this comprehensive report details what the team sees as the biggest issues facing the 50 states and
Read the full State of the States Report.
About Morgan Stanley Investment Management
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About Morgan Stanley
Morgan Stanley (NYSE: MS) is a leading global financial services firm providing a wide range of investment banking, securities, wealth management and investment management services. With offices in 42 countries, the Firm's employees serve clients worldwide including corporations, governments, institutions and individuals. For more information about Morgan Stanley, please visit www.morganstanley.com.
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Colleen McElhinney
617.672.8995
Colleen.McElhinney@morganstanley.com
Source: Morgan Stanley Investment Management
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