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The opinions expressed herein are those of Asset Preservation Advisors, LLC ("APA") and are subject to change without notice. This material is not financial advice, or an offer to sell any product. APA reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs, and there is no guarantee that their assessment of investments will be accurate. There is no guarantee that APA’s strategies or recommendations will equal or exceed expectations discussed. Asset Preservation Advisors, LLC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about APA including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request or by calling (404) 261-1333. Asset Preservation Advisors Copyright 2024

  • Matthew Riggle and Brandon Durnwald


As the Federal Reserve raises rates in an effort to reduce inflation, and as the possibility of a recession looms, APA wants to share some insights on how we monitor States’ recession preparedness. Our main concerns are low fund balances and weak reserves, population and revenue losses, large unfunded pensions, and high debt levels.

Initially, APA wants to review some high-profile states that we feel have prepared well for a possible recession:

The state of Texas recently announced a record $33 billion surplus, which Comptroller Glenn Hegar said contributed to “vigorous economic growth,” spikes in energy prices and inflation. Texas also experienced the largest population gain of any state in 2022, which led to increased revenues. In addition, the state also boasts strong reserves at 42% of expenses, and has one of the lowest personal tax burdens in the country. 

California, known for its dramatic swings in tax revenues, is projecting a $22 billion deficit. Despite this shortfall, the overall outlook is healthy. The Golden State, taking advantage of the strong overall economy, used recent surpluses in a constructive manner by paying down debts, and padding reserve accounts in preparation of the next economic downturn.  The state’s rainy day fund balance of $22.4 billion can only be drawn down if the governor declares a fiscal emergency, and no more than 50 percent of the balance can be withdrawn in a fiscal year.

However, while Texas and California are relatively stable, there are a few states which we feel have less desirable credit profiles; we highlight those states below:


Source: National Association of State Budget Officers, FCM; Dec 31, 2022.

APA values each state’s ability to maintain financial stability during a downturn or unforeseen circumstances. When analyzing the creditworthiness of an issuer, APA carefully evaluates the fund balance, as healthy reserves provide additional protection. Illinois continues to be a major concern for APA as they have the lowest year-end balance percentage of all fifty states¹.  The total balance referenced in the graph above contains both the ending general fund balance as well as the rainy day reserve fund.

Debt Levels

Source: Moody's, FCM; Dec 31, 2022.

Tax-supported debt and pension liability remain a highly important factor for APA when assessing the creditworthiness of an issuer. As indicated by the data shown in the graph above, the net tax-supported debt of the listed states range from 150% (Kentucky) to nearly 500% (Connecticut) when compared to the US national median on a percentage of personal income basis. When analyzing a credit, APA evaluates each state’s ability to limit their debt in order to gain continued financial flexibility.

Pension Debt

Source: Moody's, FCM; Dec 31, 2022.

The low funded ratios and increasing costs of public pension plans continue to grab national headlines. While the national funded ratio continues to hover around 75%, six states reported funded ratios below 60%; Kentucky is the lowest performer with a 47% funded ratio followed by New Jersey and Illinois at 51%, and Connecticut at 52%.² APA closely monitors the funding ratios to determine a deterioration or increase as a percentage of overall expenses.

Income Outflow

Source: IRS, FCM; Dec 31, 2022.

APA also monitors population migration as an indicator for tax base valuations. The above data is a comparison of individual income tax forms filed and their state of record.  Based on Adjusted Gross Income (AGI) flows, states are compared to others and designated either a “winner” or “loser.” Breadth measures the loss of tax base to another state, with a high score designating AGI loss. Increasing population and income migration flows tend to lead to higher revenues in the form of property and income taxes. Not captured on the graph above is the state of New York which ranked last, losing AGI to all 49 states.  

1 - National Association of State Budget Officers, FCM; Dec 31, 2022

2 - Source: Moody's, FCM; Dec 31, 2022.



Past performance is not indicative of future results. Investing involves risk including the potential loss of principal. This material is not financial advice, or an offer to sell any product. The actual characteristics with respect to any particular client account will vary based on a number of factors including but not limited to: (i) the size of the account; (ii) investment restrictions applicable to the account, if any; and (iii) market exigencies at the time of investment. Asset Preservation Advisors, Inc. reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. This is not a recommendation to buy or sell a particular security. There is no assurance that any securities discussed herein will remain in an account's portfolio at the time you receive this report, or that securities sold have not been repurchased. The securities discussed may not represent an account's entire portfolio, and in the aggregate may represent only a small percentage of an account's portfolio holdings. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable, or will equal the investment performance of the securities discussed herein. Information was obtained from third party sources which we believe to be reliable ,but are not guaranteed as to their accuracy or completeness.

 APA is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill of training. More information about the advisor including its investment strategies and objectives can be obtained by visiting A copy of APA's disclosure statement (Part 2 of Form ADV) is available without charge upon request. Our Form ADV contains information regarding our Firm’s business practices and the backgrounds of our key personnel. Please contact APA at 404-261-1333 if you would like to receive this information.



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