State of the States: Municipal Bond Credit Perspectives – May 2018

Conning’s State of the States report is our proprietary, ongoing ranking of the U.S. states by credit outlook. In this issue, we also offer insight on the recent tax-law changes along with our overall assessment of municipal bond credit quality. States are the largest issuers of municipal bonds and we believe that a sound understanding of their credit quality is a prerequisite to effective municipal bond investing. This report forms the basis for our internal ratings, which also consider security features and fiscal management, yielding a comprehensive assessment of both credit quality and direction. This analysis centers our disciplined approach to constructing and managing municipal bond portfolios.

Executive Summary
Conning has a declining outlook on state credit quality. State revenue growth is trending below the growth in state expenditures (as well as the growth of U.S. GDP), and this mismatch has led to state reserves edging lower since our last report in October 2017.

The ongoing economic expansion continues to be uneven. Several states concentrated in the Northeast are lagging, while many West- ern and Southeastern states are experiencing strong economic growth. We believe that above-average economic activity foreshadows credit upgrades and better relative bond performance.

A handful of states are now in perpetual budget mode, making mid-cycle adjustments, watching revenues come up short and experiencing enactment delays. We expect this pattern to continue with FY 2019 budgets starting July 1. Increases in retirement costs and Medicaid continue to crowd out spending on other essential purposes for many states, making for tough political decisions.

The Tax Cuts and Jobs Act (TCJA) has added a new challenge for states with high income and property taxes, in the form of a new $10,000 per-family cap in state and local deductions (SALT). Curtailing the SALT deductions is especially challenging for middle- to high-income taxpayers in states with higher tax rates, who in turn are pressuring political leaders to cut state and local taxes. For these taxpayers, the benefits of the TCJA may be negated – and their taxes may even go up. Taxpayers in low-tax states are much more likely to see greater tax-relief benefits created by TCJA.

The TCJA also affects the municipal bond buyer base. The lower corporate tax rate makes municipal bond investments less attractive for P&C insurers and banks, which account for about 25% of all municipal bonds outstanding. In 2017, P&C insurers and banks increased their holdings by $33 billion, but this demand is unlikely to be maintained in 2018.1

However, life insurers may find tax- advantaged securities more attractive under the TCJA. Demand from individuals has also been strong, especially in states with high state-income tax rates. While the municipal bond buyer base is changing, we estimate new-issue municipal supply will be lower by 25% in 2018, as the TCJA has eliminated tax-exempt advance refundings of municipal bonds.

States continue to be very cautious in issuing new debt; debt service remains less than 5% of General Fund expenditures for most states. Growing costs for Medicaid, pensions and other retirement benefits (OPEB) are crowding out room for new capital projects. The proposed infrastructure plan by the Trump administration will not likely lead to a meaningful increase in state debt issuance, as it calls for more than seven dollars of state funds for each dollar of federal grant money on a project- by-project basis. States and their political subdivisions have political and economic limits in their ability to raise revenue, and the Trump infrastructure proposal does not alter this reality.

Key Findings
• Conning maintains its declining outlook on state credit quality.
• Slow state tax-revenue growth is making for tough fiscal choices.
• Economic growth is concentrated in Western and Southeastern states.
• The Tax Cuts and Jobs Act has altered the municipal bond buyer base. • Elimination of state and local tax deduction is adding challenges for high-tax states.
• Overall municipal credit quality is benefiting from U.S. economic growth.
• Revenue bond sectors have positive outlooks.

Although we have a declining outlook on the state credit sector, Conning has improving or stable outlooks on all the municipal market’s other major risk sectors. Steady home price appreciation, growing consumer confidence plus higher wages and wealth levels are leading to more driving, flying and purchases – all of which increase municipal revenues.

State Revenues: Slow Growth Continues in 2017
AAs Exhibit 1 illustrates, state tax revenues increased 3.8% in 2017, which is an improvement from 2016 but still below the growth in GDP and state General Fund expenditures. Some of the 2017 state revenue growth is due to individuals and corporations prepaying their income taxes as a result of the passage of the TCJA, which are one-time prepayments that will not lead to long-term growth. Furthermore, 25% of the states’ revenue growth came not from economic growth but from newly enacted revenue measures, according to the State Expenditure Report, Fall 2017, from the National Association of State Budget Officers (NASBO).

State Expenditures: Outpacing Inflation
Lackluster revenue growth from state taxes has been accompanied by state General Fund expenditures being up 4.0% in 2017.2 As Exhibit 2 illustrates, state expenditures continue to outpace the CPI inflation measure, implying that states face difficult choices between higher taxes, spending cuts or reserve draw- downs. Combined with the state election cycle, which includes many gubernatorial races in large states, we expect a contentious state budget enactment process this spring and summer, which is a credit concern.

State Spending Trends: Medicaid Crowding Out Other Needs
In the past two decades, Medicaid spending has risen to 29% of total state spending (FY2016) from 20% (FY1996), per NASBO’s latest State Expenditure Report. During the same period, elementary and secondary education fell to 19.6% of total state spending from 22%. Medicaid is currently the largest state-spending component and was the fastest-growing component (6.1%) in FY2016.

Another major expenditure driver are legacy costs. These are not shown as a specific expenditure in Exhibit 3, but are embedded in all the categories. Many states, most notably California, have lowered their assumed rates of return on pension investments. While this may be good governance, it also increases required state pension plan contributions.

As shown in Exhibit 4, fund-reserve balances continue to fall. Reserve balances vary dramatically: 13 states have less than 5%, as shown in Exhibit 5, including Illinois, New Jersey and Pennsylvania. Among the states with large reserve balances, Texas and Alaska have more than 15%.

State Pensions: No Improvement
For state pension plans, net unfunded liabilities edged higher in 2016. The Funded Ratio declined to 71.1% in FY2016 from 74.5% in FY2015, per state financial reports. Conning expects some improvement in funding ratios for FY2017 once higher FY2017 investment returns are factored in. Exhibit 6 lists the states with the lowest funded ratios.

States report a wide dispersion in funded ratios: some have fully funded plans while others have huge unfunded obligations created by years of underfunding, plan changes and poor investment performance. Many states now required to make higher pension contributions are choosing to not fund 100% of their annual required contribution, most notably New Jersey. Other states are extending the time to reach fully funded status, most notably Illinois. These actions make the pension liabilities even greater.

Economic Debt: Fixed Costs Vary by State
Economic debt measures each state’s total fixed-cost obligations, not just direct or stated debt issued. It tallies stated debt plus a state’s net pension liability (NPL) and its unfunded other post-retirement benefits (OPEB) liabilities. Conning believes economic debt is a more comprehensive measure of fixed costs and an important credit factor.

While aggregate FY2016 stated debt was $517 billion, Conning calculates that economic debt (including stated debt) for the same period was $1.6 trillion. The difference is NPL plus unfunded OPEB. Although the failure to make annual required contributions in full to these accounts does not constitute an event of default, these are long-term obligations and for many states it is all but impossible to reduce vested benefits. While states generally have more control over setting OPEB benefits, these are often subject to collective bargaining agreements.

Several states have high economic debt levels with the annual expense to service their fixed-cost obligations accounting for 20% or more of their General Fund expenditures. States with little economic debt do not have this burden, giving them a material credit and competitive advantage. Illinois, New Jersey, Connecticut and Pennsylvania have fixed costs exceeding 20% of their expenditures. Median state economic debt as a percentage of personal income is 5.4% as calculated by Conning, but as Exhibits 7 and 8 illustrate, the dispersion by state is quite wide.

General Fund Reserves: Major Differences by State
General Fund reserves provide an important cushion in the event revenues and expenditures fall out of balance. The median state General Fund reserve balance as estimated by NASBO in its Fall 2017 report is 7.7%. The state leaders and laggards are set forth in Exhibit 9.

GDP Growth: All States Up
Real GDP increased in every state in the third quarter of 2017 versus the third quarter in 2016 at seasonally adjusted annual rates; year over year, GDP grew 4.1% on average. States that have the strongest GDP growth during the period are listed in Exhibit 10, while the laggards are shown in Exhibit 11.

State Employment: Impressive Growth
During the past 12 months (February 2017-February 2018), the U.S. economy added just over two million jobs. All states gained employment except Alaska, Delaware, Louisiana and North Dakota. Employment growth is an insightful economic indicator as it drives state tax revenue, housing prices and personal income.

Unemployment rates have come down since our October 2017 report. Colorado, Hawaii, Idaho, Iowa, Maine, Nebraska, New Hampshire, North Dakota, Vermont and Wisconsin all reported unemployment rates at or below 3%, while only Alaska reported an unemployment rate above 6% (7.3%). Employment growth by state is listed in Exhibits 12 and 13.

Personal Income: Growth Led by Mountain, Pacific and Southeastern Regions
State personal income is defined as the sum of net earnings by place of residence, property income, and personal current- transfer receipts. State personal income grew by 3.1% on average in 2017, up from 2.3% growth in 2016 per the Bureau of Economic Analysis. North Dakota was the lone state to experience a decline in personal income. Meanwhile, personal income increased 1.1% quarter over quarter in 4Q2017, led by Nevada’s 1.5% growth.

Home Price Appreciation: Another Year of 6%+ Growth
The Home Price Index (HPI) is calculated by the Federal Housing Finance Agency (FHFA) using conventional, conforming mortgages that are backed by either Fannie Mae or Freddie Mac. House prices rose 6.7% between the fourth quarters of 2016 and 2017. All states except Mississippi experienced home price increases. In 2016, home prices also rose more than 6%. The Mountain, Western and Southeastern regions led the way higher as illustrated by Exhibit 16.

Population Growth: Western and Southern States Lead
Population growth since the last census in 2010 has been led by a handful of states. Over the past seven years, 45% of the nation’s population growth of almost 17 million has come from three states: Texas, California and Florida. Over this same period, three states have lost population: Illinois, Vermont and West Virginia. Exhibit 20 illustrates population growth since 2010 by state.

State of the States Methodology
Conning analyzes 13 economic and government-obligation credit ratios to calculate our state rankings, measuring business climate, credit-specific metrics, economic and income levels, and housing activity. Exhibit 21 sets forth the indicators and their respective weightings. We emphasize the indicators that we think are forward-looking and correlate to future financial results.

The definitions and sources of each of the indicators can be found in Appendix A.

The Results: Utah to Kentucky
Conning’s five top-ranked states are Utah, Colorado, Idaho, Texas and Washington. Their common threads include strong economic growth, favorable business conditions and low fixed costs.

Our five lowest-ranked states are Connecticut, New Mexico, Illinois, Mississippi and Kentucky. These states share some combination of high commodity-revenue reliance, high legacy costs, slow economic growth and a less favorable business climate. The state rankings by each indicator can be found in Appendix B.

Of note among the large states is the continued credit improvement for California, rising to 14th from 23rd in our October 2017 report. California is in its best fiscal situation in over 15 years. State tax revenues were up over 7% during 2017 without any new revenue actions. Reserves are also at record levels and growing. State debt levels have been stable. Concerns remain due to the state’s high unfunded pension levels and OPEB and the fear of what a recession would do to tax revenues. An impediment to a higher ranking is California’s high state income and sales tax rates, which hinder its competitiveness.

Exhibit 23 provides our current rankings alphabetically by state and whether the rank has materially improved, declined or remained stable from our October 2017 report. Since our last report, many of the oil patch states, including Texas, Oklahoma, North Dakota and Wyoming, have seen their relative state rankings improve as a result of the recovery of oil prices.

Credit highlights for the best and worst states are displayed in Exhibits 25 and 26.

Special Section: TCJA, Infrastructure and the Municipal Bond Market

State and Local Taxes (SALT) Cap: New Worry for High-Tax States
Under the TCJA, state and local tax deductions are limited to $10,000 per return ($5,000 for married couples filing separately). States where SALT deductions are highest as a percentage of personal income include New York, New Jersey, Connecticut, California, Maryland and Oregon. Lawmakers in these states are considering ways to preserve this deduction, but the likelihood of the IRS approving measures to evade the $10,000 cap is uncertain.

The SALT deduction cap will erode and possibly eliminate all the benefits of the personal income tax cuts for many upper- middle-class earners in states with high tax rates. Higher-income residents of states with lower tax rates will receive a greater share of benefits from the TCJA tax cuts. This could accelerate the migration away from states with higher tax rates to those with lower rates, creating a new credit concern for the former.

On balance, the TCJA has made the states with higher tax rates less competitive.

Federal Changes: TCJA Has Altered the Municipal Bond Buyer Base
The lower corporate tax rate of 21% has made municipal bond investments less attractive for P&C insurers and banks, which account for 24% of total municipal bond holdings.3 We expect P&C companies to be less active buyers of tax-exempt municipal bonds, especially at the short end of the curve.

Proposed Congressional legislation classifies municipals as level 2B high-quality liquid assets (HQLA), the same as for mortgage-backed securities but below sovereign debt. This new potential demand may offset some loss of demand created by the lower corporate tax rate. Furthermore, municipal bonds continue to offer diversification for portfolios with significant corporate bond exposure, and a universe of average higher quality than today’s corporate bond market.

While P&C insurers may have less interest, life insurers may have more interest in municipal bonds. While life companies hold just 5% of all municipal securities (tax-exempt and taxable), the TCJA has increased the value of holding tax-exempt securities for life insurers by lowering their effective tax rate to 6.3%. (Previously the effective tax rate on tax-exempt municipals was higher and complicated for life insurers to determine.) Under the TCJA, tax-exempt income for life insurers is now taxed just above the 5.25% rate for P&C companies.

However, the traditional ability for issuers to call bonds after 10 years is a concern for life insurance accounts, which are long- duration buyers. New structures, including replacing call features with make-whole calls, may be needed to attract these buyers. While the TCJA has slightly lowered personal tax rates, we expect individual demand for tax-exempt municipal bonds to remain strong especially in states with high income-tax rates. With state and local deductions capped, tax-exempt municipal bond interest is one of the few tax deductions remaining.

The TCJA eliminated the ability of municipal issuers to advance refund outstanding bonds. Advance refundings of existing bonds, which result in two sets of bonds outstanding for the same project, have accounted for as much as 40% of total annual issuance. This prohibition may lower municipal issuance as much as 25% in 2018 compared to 2017. Thus, any reduction in demand will be offset by lower supply.

Overall, there is a great deal of information for market participants to digest. There are crossover buyers, ETFs and mutual funds willing to step in if municipal yields become attractive. On balance, we expect demand for municipal securities to hold steady.

Trump Infrastructure Plan: No Surge of Issuance
The White House has proposed a $1.5 trillion, 10-year infrastructure plan, entitled “Legislative Outline for Rebuilding Infrastructure in America.” The proposal calls for $200 billion in federal funding with the remainder coming from state, local and private sources, with a heavy reliance on public-private partnerships.

The plan relies heavily on states to finance the bulk of new infrastructure improvements, similar to today. A key question: can the federal government commit $200 billion in additional spending given its own budget deficit? Raising the federal gas tax is one way for the federal government to pay for new transportation infrastructure, but historically Congressional support for this has been difficult to obtain. The existing tax rate of 18.4 cents per gallon has not been adjusted since 1993.

In the White House proposal, state governments and their political subdivisions would apply for federal grants to one of three agencies, based on the project. Applicants would have to identify how they would fund their share of the projects, which would be an important selection criterion for receiving grant money. This would mean spelling out meaningfully high state fee and tax increases in the applications, which has been politically difficult for both state and local governments facing their own fiscal challenges, let alone adding new projects. Nothing in this plan changes that reality.

The plan also includes permitting reform, which may be difficult for Congress to approve. Even if approved in some fashion, money could be slow in forthcoming due to the grant approval process. Thus, we feel there is no immediate concern over any surge in new municipal issuance related to the proposed federal infrastructure plan.

Municipal Credit Quality Show Overall Improving Trend
Municipal credit has been on an improving trend, benefiting from the ongoing national economic recovery. Severe credit problems, where they exist, are concentrated in a few large issuers, namely Puerto Rico, Illinois and New Jersey. The recovery is lifting home prices and economic activity and both are either taxed or subject to user fees by state and local governments. Credit upgrades exceeded downgrades for the third consecutive year in 2017, per Moody’s.4 Conning sees improving to stable outlooks for all major risk sectors composing the municipal universe, other than for state-backed obligations, as summarized by Exhibit 27. Two sectors where we see value are airport and health care credits.

Airports
During the past two years, domestic aviation traffic has increased 9.2% among large-hub airports and 14.2% among mid-hub airports, and the rate of growth in enplanements is exceeding national GDP growth.5 Demand is primarily a function of economic and population growth, especially for airports that principally serve origin and destination passengers, where airline traffic is most responsive to local economic conditions and population growth. Other developments affecting airports and airlines have generally been positive as well, with capacity apparently growing responsibly.

This airport sector has proven resilient to both natural and man-made disasters. The fall 2017 hurricanes striking Texas and Florida closed several airports for several days but didn’t cause material damage or long-term financial strain. The 2016 Florida zika outbreak didn’t materially affect airport credits like the Miami International Airport, the Orlando International Airport, the Fort Lauderdale- Hollywood International Airport or the Tampa International Airport. Even looking back at 9/11, after which civilian air traffic was grounded for a week, airport traffic recovered with no permanent impairment in airport credit quality.

Another positive trend for airports is growth in international traffic. International travellers tend to spend more at airports, generate higher landing fees and use other airport services such as parking. Millennial behavior is also a tailwind for the sector: younger people prefer living in cities without owning cars and using air travel more frequently. We have an improving outlook on the airport sector.

Healthcare
We believe that the healthcare sector merits a stable outlook and is an appropriate asset class for insurance companies. Healthcare providers, which we define as those operating acute-care facilities, have improved their financial profiles in recent years with adoption of the Affordable Care Act (ACA). Medicaid expansion has increased the number of patients covered by insurance while reducing bad debt expense. Investment- grade hospitals provide essential services and generally have strong financial profiles with a growing need for their services as the population ages. Most healthcare providers have been successfully adjusting their business models for the ACA, an aging population, lower reimbursement levels and value-based reimbursement models. Merger and acquisition activity is also strengthening credit profiles.


By Conning
Paul Mansour, Managing Director & Head of Municipal Credit Research
Karel Citroen, Director
Diane Diaz, Assistant Vice President
Nolan Cicerrella, Analyst

1The Board of Governors of the Federal Reserve System, Financial Accounts of the United States – Z.1, L.212 Municipal Securities, https://www.federalreserve.gov/ releases/z1/20180308/html/l212.htm, March 8, 2018
2©2017 The National Association of State Budget Officers, “Fiscal Survey of the States (Fall 2017),” https://www.nasbo.org/reports-data/fiscal-survey-of-states
3The Board of Governors of the Federal Reserve System, Financial Accounts of the United States – Z.1, L.212 Municipal Securities, https://www.federalreserve.gov/ releases/z1/20180308/ html/l212.htm,
4Rating revisions: Upgrades top downgrades in 2017, though downgraded is higher”, ©2018 Moody’s Investor Service,Inc., and/or their licensors and affiliates – used with permission.
5Calculated by Conning. Calendar Year (CY) Passenger Boardings at Commercial Service Airports, CY 2016 vs 2014, Hubs L, M; https://www.faa.gov/airports/planning_ capacity/passenger_allcargo_stats/ passenger/media/cy16-commercial-service-enplanements.pdf; https://www.faa.gov/airports/planning_capacity/passenger_allcargo_ stats/passenger/media/cy14-commercial-service-enplanements.pdf
©2018 Conning, Inc., Conning Municipal Credit Group
CONNING’S MUNICIPAL CREDIT RESEARCH TEAM
Conning manages more than $9 billion of municipal bonds held in client portfolios. Its dedicated municipal research team follows the firm’s existing holdings and makes recommendations for new purchases.
Paul Mansour, a Managing Director and Head of Municipal Credit Research, joined Conning in 2006. Previously, Mr. Mansour was employed by MBIA Corporation as a Managing Director and business leader for revenue producing units where he prepared and approved municipal credit reports while also super- vising credit analysts for 23 years. Paul started his career at the New York State Power Authority serving four years as a revenue and power forecasting analyst. Mr. Mansour is a graduate of Colgate University with a degree in Economics and earned an MBA from Pace University. He is a member of MAGNY and the Municipal Bond Club of New York.
Karel Citroen, a Director Municipal Credit Research, joined Conning in 2015. Previously, Mr. Citroen was employed by MBIA Corporation as a Vice President of municipal portfolio surveillance. Prior to obtaining an MBA from the Yale School of Management, he worked in the Netherlands as a banking and securities law lawyer for different financial institutions. Mr. Citroen earned an LL.M from the University of Amsterdam in 2000. He is a member of MAGNY and has 10 years of industry experience.
Diane Diaz, a Vice President, joined Conning in 2014. Previously, Ms. Diaz held positions in the public and non-profit sectors. Ms. Diaz earned a BA from the University of Pittsburgh and a Master of Public Ad- ministration from the University of Connecticut. She is a member of the National Federation of Municipal Analysts and the Municipal Analyst Group of New York.
Nolan Cicerrella, an Assistant Vice President, joined Conning in 2015. Previously, Mr. Cicerrella was employed by Bank of America as a Residential Credit Analyst. Mr. Cicerrella is a graduate of the University of Connecticut with a degree in Economics and is currently pursuing an MBA from the University of Connecticut School of Business. He is a member of the Municipal Analyst Group of New York.
ABOUT CONNING®
Conning (www.conning.com) is a leading global investment management firm with a long history of serving the insurance industry. Conning supports institutional investors, including pension plans, with investment solutions and asset management offerings, award-winning risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.
© 2018 Conning, Inc. All rights reserved. The information herein is proprietary to Conning and represents the opinion of Conning. No part of the information above may be reproduced, transcribed, transmitted, stored in an electronic retrieval system or translated into any language in any form by any means without the prior written permission of Conning. This publication is intended only to inform readers about general developments of interest and does not constitute investment advice. The information contained herein is not guaranteed to be complete or accurate and Conning cannot be held liable for any errors in or any reliance upon this information. Conning, Inc., Conning Asset Management Limited, Conning Asia Pacific Limited, Goodwin Capital Advisers, Inc., Conning Investment Products, Inc. and Octagon Credit Advisors, LLC are all direct or indirect subsidiaries of Conning Holdings Limited (collectively “Conning”) which is one of the families of companies owned by Cathay Financial Holding Co., Ltd. a Taiwan-based company. CTech: 6978415
Appendix A — Description of Indicators
Laffer State Competitive Environment (8% weight) Arthur Laffer, a supply-side economist, developed the Laffer State Economic Competitive Index. The report assigns an Economic Outlook Rank based on a state’s current standing in 16 state policy variables including top marginal personal and corporate income tax rates, property and sales tax burdens, and state minimum wage. Rankings are from his 11th edition 2018 report.

Source: ©2018 American Legislative Exchange Council (ALEC), Rich States Poor States, Authors: Dr. Arthur B. Laffer, Jonathan Williams, and Stephen Moore, 11th Edition, published April 16, 2018 – used with permission, http://www.alec.org/publications/rich- states-poor-states/

Economic Debt Per Personal Income (8% weight) This indicator ranks each state according to its economic debt as a percentage of each state’s first quarter personal income. Conning defines “Economic Debt” for each state as its Net Tax-Supported Debt + State Unemployment Trust Fund Loan Balance (if any) + Unfunded Pension Liabilities + Unfunded OPEB Liabilities. Each state’s Economic Debt is then divided by its personal income.
Economic Debt = Net Tax-Supported Debt + State Trust Fund Loans + Unfunded Pensions + OPEB Liabilities/ personal income Sources: ©2017 Moody’s Investors Services, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates – used with limited permission; Office of Unemployment Insurance, Division of Fiscal and Actuarial Services, U.S. Department of Labor “State Unemployment Insurance Trust Fund Solvency Report 2018,” https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2018.pdf; and Bureau of Economic Analysis, U.S. Department of Commerce (2017), “State Personal Income: 2017” (March 22, 2018), https://bea.gov/ newsreleases/regional/spi/2018/pdf/spi0318.pdf
FY17 General Fund Balance as a percentage of GF Expenditures (8% weight) This indicator ranks the states according to their General Fund balance as a percentage of expenditures for FY17. Each state’s ending balance and budget stabilization fund are added together to equal their total funds. Each state’s total fund is then divided by that state’s expenditures. This data was taken from The Fall Fiscal Survey of States (December 2017), published by the National Association of State Budget Officers.
Sources: ©2017 The National Association of State Budget Officers, “Fiscal Survey of the States (Fall 2017),” https://www.nasbo.org/ reports-data/fiscal-survey-of-states
Debt per Capita (8%) Dividing total state debt by population provides a measures a state’s debt burden.
Sources: “©2018 Moody’s Investors Services, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates – used with limited permission, “Medians – Total State Debt Remains Flat in 2017” (May 3, 2017) and
Census Bureau, U.S. Department of Commerce (2017), https://census.gov/data/tables/2017/demo/popest/state-total.html
Tax Revenue Growth (8% weight) This indicator ranks the states according to their tax revenue growth for the 12 months ended December 31, 2017 as compared same period a year earlier. The data was obtained from the U.S. Census Bureau.
Source: Census Bureau, U.S. Department of Commerce (2018), https://www.census.gov/data/tables/2017/econ/qtax/historical/q4.html
Gross Domestic Product (GDP) Growth by State (8% weight) This indicator ranks each state’s annual growth in GDP. This information comes from the U.S. Bureau of Economic Analysis.
Source: Bureau of Economic Analysis, U.S. Department of Commerce (2015-2017), https://bea.gov/newsreleases/regional/gdp_state/ qgsp_newsrelease.htm
Gross Domestic Product per capita (8% weight) This indicator equals GDP divided by the population of each state, per statistics from the U.S. census bureau.
Source: Bureau of Economic Analysis, U.S. Department of Commerce (2018), https://bea.gov/newsreleases/regional/gdp_state/qgsp_ newsrelease.htm
Year-over-Year Employment Growth (8% weight) This indicator ranks the states based on their year-over-year total employment growth from February 2017 to February 2018. The data was obtained through the Bureau of Labor Statistics using seasonally adjusted figures.
Source: Bureau of Labor Statistics, U.S. Department of Labor (2018), https://www.bls.gov/news.release/laus.t01.htm
Median Family Income(8% weight) This indicator ranks states by their median household income. Information is from the census survey dated September 14, 2017.
Source: Census Bureau, U.S. Department of Commerce (2018). https://www.census.gov/data/tables/time-series/demo/income-poverty/ historical-income-households.html
Unemployment Rate (8% weight) This indicator ranks the states by their February 2018 unemployment rate. The unemployment rate is the percentage of the labor force that is unemployed but is actively seeking employment and is willing and able to work. The data were obtained from the Bureau of Labor Statistics.
Source: Bureau of Labor Statistics, U.S. Department of Labor (2018), https://www.bls.gov/news.release/laus.t01.htm
Year-over-Year Personal Income Growth (8% weight) This indicator ranks the states according to their personal income growth over the most recent 12 months ending December 31, 2017.
Source: Bureau of Economic Analysis, Department of Commerce (2016) https://bea.gov/newsreleases/regional/spi/2018/pdf/spi0318.pdf
One-Year change in Home Prices (8% weight) This indicator ranks the states based on their one-year change in home prices. The data were obtained through the Federal Housing
Finance Agency (FHFA) and covers the quarter ended December 2017.
Source: Federal Housing Finance Agency (FHFA) (2018), https://www.fhfa.gov/AboutUs/Reports/Pages/US-House-Price-Index-Report- 4Q2017-December.aspx
Population Change (4% weight) Annual change in population by state from July 2016 to July 2017
Source: Census Bureau, U.S. Department of Commerce (2017) https://www.census.gov/data/tables/2017/demo/popest/state-total.html

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