Although it has become commonplace to measure the viability of the 50 U.S. states by their overall financial status, or even their socio-cultural flexibility, the ultimate and realistic measure of the states’ fiscal condition is the strength of their issued municipal bonds, according to an exhaustive study in Financial Weekly, Barron’s.
Surprisingly, despite ominous headlines regarding Detroit’s bankruptcy and Puerto Rico’s teetering economic troubles, Barron’s finds that most of the $3.7 trillion muni-bond market is in excellent financial condition. States account for more than $500 billion in debt, but are among the strongest credits in the muni market, with 14 carrying Triple A ratios from Moody’s and Standard & Poor’s. As is well-known, state and local governments face pension obligations; but their total financial obligations appear manageable, when measured against revenue and personal income, and the scope of the states’ economies.
A positive vote of confidence emanated from Moody’s investor services in August, which upgraded the credit outlook for the U.S. states to stable from negative, where it had prevailed since the beginning of the 2008 financial crisis. When analyzing the states’ rating against a number of measurements, such as debt, unfunded pension liability, pension reforms, and healthcare management, the highest ratings have been awarded to Nebraska, Iowa, South Dakota and North Carolina, in that order. The bottom rung is occupied by Puerto Rico, Connecticut, Illinois, and Hawaii in reverse order.
Nebraska’s Governor, Republican Dave Heineman, when informed of his lofty status, indicated laconically, “We don’t spend money we don’t have.” Surprisingly, conservative Texas, cited for its economic strength, and liberal California, derided for its economically-antagonistic climatological extremes, were both not far apart in the middle.
The situation that has befallen America’s big cities is more tragic. While the demise of Detroit into bankruptcy has been well publicized, the fact that Chicago is at the bottom of the heap is both personally and analytically painful, since most of my professional years have been spent in the Chicago area. New York, America’s largest city, has benefitted by the successive Giuliani/Bloomberg Administration, which have provided financially responsible mayoral leadership, vaulting “Gotham” from near bottom 25 years ago to the upper quarter percentile in August.
However, with the Democrat candidate Bill de Blasio, who has already promised to reverse both fiscal, as well as hard-won security regulations leading lopsidedly in polls, this highly-taxed center of world finance may therefore be headed for an unwarranted populist slide, reversing the trend of the last generation.
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