34 States Beat Revenue Targets in 2025, Puerto Rico Lags
Event summary
- 34 states exceeded revenue estimates in fiscal year 2025, with 9 more meeting expectations; 7 states and Puerto Rico fell short.
- Median debt-to-GDP and unfunded pension-to-GDP ratios declined to 3.9% in 2024 from 8.3% in 2011.
- Rainy day funds averaged 13% of expenditures, with 5 states holding less than in 2007.
- Puerto Rico's liabilities-to-debt ratio stood at 54%, nearly double any U.S. state.
The big picture
Morgan Stanley Investment Management's 13th annual State of the States report highlights a stable credit outlook for most states, driven by stronger GDP growth, favorable investment returns, and pension reforms. The report also introduces new factors like tariff and import/export data, reflecting the growing complexity of state-level economic dynamics. With $1.9 trillion in AUM, MSIM's analysis underscores the importance of active credit research in navigating the municipal market's nuances.
What we're watching
- Tariff Impact
- How shifting tariff policies will affect state economies, particularly those with manufacturing or export focus.
- Population Migration
- Whether states like Florida and New York can sustain income potential shifts due to interstate migration trends.
- Federal Aid Changes
- The downstream effects of adjustments in federal aid programs like Medicaid and SNAP on state budgets.
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