Morgan Stanley Investment Management’s latest State of the States report says most U.S. states have a stable credit outlook, with 34 states beating fiscal 2025 revenue estimates and only seven falling short. The report cites stronger GDP growth, investment returns and pension reforms that helped reduce median debt and unfunded pension ratios versus 2011, while rainy day funds held near 13% of expenditures. It also flags risks from shifting tariff policy, interstate wealth migration and potential changes in federal aid programs, with Puerto Rico remaining a major outlier due to much higher liabilities.

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