Staff Report
Published June 19, 2012

South Carolina showed the second-highest rate of improvement in credit quality among the 50 states in a semiannual report by Conning Inc., a global provider of asset management services, risk and capital management solutions, and research to the insurance industry.

The 2012 State of the States Municipal Credit Research Report ranks all 50 states in terms of their credit quality based on extensive analyses of 13 key indicators including revenue growth, year-over-year employment gains and foreclosure rates.

South Carolina ranks 24th from the best, North Dakota, but it moved up 15 places from 39th in the previous report. Only Florida and Washington state showed more improvement, as both moved up 16 places in the state ranking.

“While states such as South Carolina and Arkansas jumped significantly in the rankings the real winner was Florida, which moved up 16 spots,” commented Paul Mansour, managing director of Conning’s municipal credit research group and lead author of the report. “Key drivers behind the improvements in Florida were a combination of good fiscal discipline, increased tax revenues, an improved general-fund balance, and an unemployment rate that dropped by more than 1 percentage point. Despite the real estate crisis, people are still moving to Florida and employment is increasing.”

In explaining South Carolina’s ranking, Conning cited improvement in state government general fund balances, employment and a lower foreclosure rate.

Overall, changes in the rankings compared with 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. Declining states included Hawaii, Massachusetts 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,” Mansour said. “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.”