States have moved beyond the recession-driven liquidity crisis but there are sources of ongoing weaknesses, such as unfunded pensions, that make states unable to rely on economic growth alone to mitigate risks of default and future structural budget stability, Morgan Stanley concludes in a report.

The 15-page report, “States of Purgatory,” warns while “default risk remains minimal, this still makes states more sensitive to the economic cycle, whereas the historical norm has been non-cyclical.”

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