Mirroring the resilient national economy, State tax revenues have followed a relatively positive trend, particularly after a short-lived decline in late 2023 through early 2024. The trailing-twelve-month growth rate of +2.4% as of August 2025 is not remarkable, but more than strong enough to support essential budgetary needs.
Balance Sheet Strength
As revenues perform as expected there is less of a need to rely on reserves, and this is reflected in recent data. Median State Rainy Day Funds fell in 2025, but primarily due to spending of one-time pandemic funds, often for capital projects, debt paydown, or supplemental pension contributions. Rainy Day Funds are projected to end fiscal 2026 at 12.9% of expenditures, a level that remains conservative and well above the average position of 4.8% from 2010 through 2020. Formidable reserves offer States considerable flexibility in meeting essential expenditures should revenues surprisingly underperform.
State Tax Revenues Remain Solid
Mirroring the resilient national economy, State tax revenues have followed a relatively positive trend, particularly after a short-lived decline in late 2023 through early 2024. The trailing-twelve-month growth rate of +2.4% as of August 2025 is not remarkable, but more than strong enough to support essential budgetary needs.
Summary
While we acknowledge the impossibility of predicting the next 12 months, we believe that States are in a strong position to weather whatever economic and/or fiscal changes are thrown at them, preserving high-quality credit conditions for the majority of State borrowers.
This commentary reflects the opinions of Appleton Partners based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information. Specific securities identified and described may or may not be held in portfolios managed by the Adviser and do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed are, were or will be profitable. Any securities identified were selected for illustrative purposes only, as a vehicle for demonstrating investment analysis and decision making. Investment process, strategies, philosophies, allocations, performance composition, target characteristics and other parameters are current as of the date indicated and are subject to change without prior notice. Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen, or experience.
"At Appleton, we view curve steepness as an opportunity to potentially rotate out of shorter-dated bonds and reinvest the proceeds further out on the curve, but still within our target maturity ranges. This can generate greater income for clients. The return of relative steepness to the intermediate portion of the municipal curve is a welcome development, as it affords investors willing to accept a moderate amount of interest rate exposure with an opportunity to pick up substantially greater tax-advantaged income."
"Uncertainty is the norm in the capital markets, yet municipal bond investors have recently been forced to grapple with unusually high levels. Record YTD net issuance, rate volatility, monetary policy questions, and Fed leadership speculation have all led to increasingly unsettled markets. But with this uncertainty comes opportunity, and for those seeking tax-advantaged income, high-quality municipal bonds currently offer attractive yields at compelling valuations along with sound credit fundamentals..."
"After months of negotiations, President Trump signed into law the “One Big Beautiful Bill Act (“OBBBA”)” on July 4th. While there are wide-ranging implications for the economy, individuals, and corporations, it is our opinion that the impact of the OBBBA provisions on the municipal market will be relatively modest..."
Economic & Market Commentary
09.23.2025
State Revenues and Municipal Credit Quality Are Holding Up Well
State Tax Revenues Remain Solid
Mirroring the resilient national economy, State tax revenues have followed a relatively positive trend, particularly after a short-lived decline in late 2023 through early 2024. The trailing-twelve-month growth rate of +2.4% as of August 2025 is not remarkable, but more than strong enough to support essential budgetary needs.
Balance Sheet Strength
As revenues perform as expected there is less of a need to rely on reserves, and this is reflected in recent data. Median State Rainy Day Funds fell in 2025, but primarily due to spending of one-time pandemic funds, often for capital projects, debt paydown, or supplemental pension contributions. Rainy Day Funds are projected to end fiscal 2026 at 12.9% of expenditures, a level that remains conservative and well above the average position of 4.8% from 2010 through 2020. Formidable reserves offer States considerable flexibility in meeting essential expenditures should revenues surprisingly underperform.
State Tax Revenues Remain Solid
Mirroring the resilient national economy, State tax revenues have followed a relatively positive trend, particularly after a short-lived decline in late 2023 through early 2024. The trailing-twelve-month growth rate of +2.4% as of August 2025 is not remarkable, but more than strong enough to support essential budgetary needs.
Summary
While we acknowledge the impossibility of predicting the next 12 months, we believe that States are in a strong position to weather whatever economic and/or fiscal changes are thrown at them, preserving high-quality credit conditions for the majority of State borrowers.
This commentary reflects the opinions of Appleton Partners based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information. Specific securities identified and described may or may not be held in portfolios managed by the Adviser and do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed are, were or will be profitable. Any securities identified were selected for illustrative purposes only, as a vehicle for demonstrating investment analysis and decision making. Investment process, strategies, philosophies, allocations, performance composition, target characteristics and other parameters are current as of the date indicated and are subject to change without prior notice. Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen, or experience.
A Closer Look at Municipal Curve Steepness & Why it Matters
Don’t Forget About Municipals:
Municipal Market Implications of the Tax & Budget Bill (“OBBBA”)