With all the hullabaloo over California’s budget crisis, one might get the impression things in the other 49 states are going swimmingly.

Barnet Sherman does not think so.

As justified as the hand-wringing over California’s credit is, the managing partner at Braintree Capital Partners has a list of 15 states he considers “at risk.” The Golden State is only one of them.

Metrics of Stress Chart

“Why do they pick on California?” Sherman asked, paraphrasing another partner at his firm. “You can throw a handful of darts, and you’d end up on a state that’s having a lot of economic distress.”

The 15 states on Sherman’s list have one thing in common: an unemployment rate of 10% or higher.

Sherman regards joblessness as the most important strain on municipal credit. A battery of other impediments to creditworthiness pivot on unemployment: home prices, sales tax receipts, income tax receipts.

Here are the states on his list, in descending order of unemployment: Michigan, Rhode Island, Oregon, South Carolina, Nevada, California, Ohio, North Carolina, Kentucky, Tennessee, Indiana, Florida, Illinois, Georgia, and Alabama.

The former portfolio manager for the Morgan Stanley/Van Kampen Tax-Exempt High Yield Fund expects more states to join the 10% club by the time the recession is over.

Another factor Sherman looks at is how rapidly unemployment has risen.

The U.S. economy has shed 7.2 million jobs since December 2007, which is when the National Bureau of Economic Research determined the recession officially began.

The unemployment rate leaped to 9.5% from 4.9% during that time, according to the Bureau of Labor Statistics.

Tough times have disproportionately fallen on certain states.

In losing 376,000 jobs since the beginning of the recession, for example, Michigan surged to a 15.2% unemployment rate in June from a 7.3% rate at the end of 2007. The state’s employed labor force shrank more than 8% in the past year.

Oregon’s unemployment rate more than doubled in a year, to 12.2% in June from 5.9% a year earlier. Unemployment in Nevada and Alabama has doubled in the past year, too.

The number of people working shrank by at least 5% in the last 12 months in Ohio, Indiana, and Georgia.

“This is a very quick and dramatic downturn, and that’s another troubling fact,” Sherman said. “That’s certainly what’s causing a large part of the dislocation in these states.”

The spike in unemployment is wreaking havoc on tax collections, especially personal income and sales taxes.

Tax receipts in the first quarter shriveled 19% in Georgia and Oregon, according to the Rockefeller Institute of Government. Michigan’s tax revenue sank 16.5% as personal income tax receipts plummeted by more than a third.

Florida, which has no personal income tax, suffered a 12.4% plunge in its main source of revenue — sales taxes.

Sherman is not predicting any state general obligation defaults. The way he sees it, credit analysis involves more than just foreseeing avoidance of default.

“We’re trying to make some distinctions here as to who’s stronger, who may come out of this and start rebounding faster,” Sherman said.

“I don’t see it as, how far are you away from D-Day?”

He contrasts the states on his list with what he describes as stronger, better-managed, diversified states like Maryland and Virginia.

For the extra yield on Rhode Island or Michigan, an investor should gird for a bumpy ride, he said.

Sherman’s point is that investors have clearly distinguished California paper from everything else.

With the state poised to enact a budget closing a $26.3 billion gap, the state’s 10-year GO bonds traded at a spread of 165 basis points over the Municipal Market Data triple-A scale yesterday.  The spread was 114 basis points at the beginning of the year.

The market may not be distinguishing enough on some of the other states, ­Sherman said.

Oregon and Rhode Island both have unemployment rates higher than California’s, and both states’ GOs carry yields at least 125 basis points lower than California’s.

South Carolina, which has a 12.1% unemployment rate, offers no yield in excess of the MMD triple-A scale.

Same for Georgia, with a 10.1% unemployment rate.

“Right now I don’t think the market is making very clear distinctions about some of the states,” Sherman said.

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