The 5 Best and 5 Worst States, Financially Speaking

Who are the five best and the five worst state governments in terms of financial health?

Asset manager Conning, in its State of the States report, finds that overall credit quality for the states is stable, although some are at high risk during a recession and their employee pension funding levels remain poor.

Utah, Nevada, Idaho, Colorado, and North Dakota are, in that order, the top states. They show population and employment growth, good balance sheets, and vibrant economies.

Colorado, the biannual project’s previous winner, now ranking at No. 4, still boasts a strong economy and low unemployment, which attracts talent. No. 1 Utah simply did it better, as its population growth has “consistently” outpaced its peers, the report said.

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North Dakota wound up knocking Texas down a peg to lock in the No. 5 slot for similar reasons.

“Population growth is definitely driving the states credit positively,” Karel Citroen, Conning’s director and head of the municipal credit research group, told CIO. “People move where jobs are.”

Citroen, one of the report’s authors, also said states where housing markets have rebounded, such as Florida, Nevada, and Arizona, have better credits than their counterparts. The laggards are now saddled with problem-laden balance sheets, housing woes, and significant pension deficits that resulted from the 2008 financial crisis.

As for the bottom five, states experiencing the most financial troubles, Conning points to Connecticut (No. 46), Rhode Island (47), Mississippi (48), Louisiana (49), and Kentucky, the anchor man at 50. The first two actually fell from previous rankings, hitting new lows. Connecticut was previously No. 44 while Rhode Island’s rankings decreased 19 pegs due to weak GDP growth, lagging employment, and income increases, plummeting to No. 47 from 2018’s No. 28.

The bottom five are all being hurt by sluggish economies, poor labor and housing markets, and debt. Kentucky’s situation is a little different, as it has also been “dragged down by pension liabilities and few reserves,” the report said.

Source: Conning

Each of those states bear silver linings, however.

Being one of the richer states, Connecticut has a higher household income growth than others. Rhode Island’s 2.1% one-year home price change, to $275,000 from $269,225, according to the Rhode Island Association of Realtors, is deemed a “strength” by Conning.

The firm also said Mississippi has a “manageable” balance sheet, and Louisiana had strong GDP growth in 2018. Despite its weaknesses in the pensions (just 33.9% funded), Kentucky has seen “robust” labor market growth, according to the report.

“The states that are doing well, they benefit from momentum,” said Citroen. “They’re tax base is growing so they don’t have to increase taxes because they have people moving there…while the states that are seeing people leave, they are burdened by the opposite where they have to raise taxes.”

Conning Acquires 45% Stake in Global Evolution

Tags: Conning, Credit, Karel Citroen, Pension, Report, State of the States

The trustees of the Sheet Metal Workers Pension Fund of Troy, Michigan, have reapplied for approval from the US Department of Treasury of a proposed suspension of benefits. The fund’s actuaries have estimated that as of May 1, 2019, the pension is only 40.6% funded, and is projected to become insolvent in the plan year beginning May 1, 2033.

According to the fund’s benefit reduction plan, non-active participants who retired before Aug. 1, 2009, and all terminated vested participants, would have their benefits cut by 35%, while non-active participants who retired on or after Aug. 1, 2009, would see their benefits reduced by 30%. As for active participants, the proposed reduction is 25% for employees that were hired before May 1, 2006, and for those hired on or after May 1, 2006, there would be no reduction.

The pension defines active participants as those who have worked at least 435 hours during the plan year ended April 30, 2017, or April 30, 2018, and who have not retired as of April 30, 2018. Non-active participants include terminated vested participants, retired participants, disabled participants, beneficiaries of participants, and alternate payees.

The pension withdrew its original application for a reduction of benefits in October 2018. At the time, the pension’s board of trustees proposed a reduction in monthly benefits such that the revised monthly amount is based on a level accrual rate of $48, multiplied by the years of service earned through April 30, 2019. Participants whose level accrual rate was already less than the $48 level accrual rate would not have had their benefits reduced. A participant’s level accrual rate is determined by dividing their benefit amount by their years of service. The reduction would have taken effect May 1, 2019.

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The plan said the proposed benefit suspension would take effect as of May 1, 2020, and would continue indefinitely.

To date, the US Department of Treasury has approved proposed benefit reductions for 14 pension plans, one of which is still subject to a vote by its participants, while five applications have been denied. The number of approvals has risen sharply under Treasury Secretary Steve Mnuchin. Since he was sworn in, the Treasury Department has approved benefits reductions for 14 pension funds, while only denying one application.

Tags: Benefits Reductions, Department of Treasury, Michigan, Pension, Sheet Metal Workers Pension Fund