Slow employment and tax growth relative to other states has taken a toll on Massachusetts’ credit worthiness, according to a new report, causing the Bay State to fall 11 spots in an annual ranking of states’ credit quality – the second-highest decline in the nation.
Massachusetts ranks 32 out of 50 in the 2012 State of the States Municipal Credit Research Report prepared by Hartford, Conn.-based asset management firm Conning Inc. In November of last year, Massachusetts ranked 21. Only Hawaii, which fell 13 spots to 39 from 26, fell more spots between November and April, the company said.
The remaining New England states also all ended up in the bottom half of the rankings, with New Hampshire, Vermont, Maine, Connecticut and Rhode Island all finishing ranked 30 or worse in the nation in terms of credit quality. Rhode Island finished dead last.
Overall, changes in the rankings compared to the November 2011 report were largely minimal, although there was improvement by some select states in the south as well as in Washington. At the top of the list were a line of states – led by North Dakota and stretching down to Texas – characterized by low debt, moderate social-service costs, and strong agriculture and energy sectors, Conning concluded. In addition to Massachusetts, declining states singled out in the report also included Hawaii and Arizona, all of which had relatively slow employment and tax revenue growth.
"What concerns us is that if the approaching ‘fiscal cliff’ creates an economic slowdown or if another recession hits in a year or two, the states that haven’t been able to rebuild their fund balances, lower their structural deficits or control the growth in their debt could face extremely grim choices," said Paul Mansour, managing director of Conning’s municipal credit research group and lead author of the report. "It is dangerous to assume in this current political and fiscal climate that the federal government would provide sufficient assistance to selected states in this scenario. For local governments, especially those located in these states, extra caution needs to be exercised." He also cautioned that while it is important to understand a state’s credit outlook there is no substitute for detailed, fundamental security credit analysis."
