A majority of the 10 U.S. states with the most tax-supported debt outstanding have only a limited capacity to withstand the effects of a moderate recession, according to a report from S&P Global Ratings.
S&P performed a stress test on the 2016-2017 budgets of the states. "The results of our scenario analysis underscore that fiscal health across the U.S. state sector is subject to the powerful countervailing effects of pro-cyclical revenue trends and countercyclical expenditure pressures," writes credit analyst Gabriel Petek. The findings "affirmed our view" that from a credit perspective states fare better when they leverage periods of economic growth to restore fiscal alignment and build budgetary reserves," he adds.
Of the 10 top-borrowing states in the exercise, Illinois, Pennsylvania, New Jersey, and Connecticut are the four most susceptible to significant fiscal stress. Washington, Florida, and New York are the best-positioned.
