Warren Buffett's Nebraska grabs top spot in new ranking of state finances

By Joy Wiltermuth

A low debt burden and a heavy reliance on natural resources helped boost Nebraska to the top of Conning's 2024 survey

An earlier version of this article misspelled the first name of Karel Citroen, head of municipal research at Conning. It has been corrected.

States can't rely on affordability alone to help drive an influx of newcomers from higher-cost states to boost their tax revenues and overall finances.

Instead, Nebraska, an energy-producing state with a relatively low debt burden, jumped seven spots to the top the Conning's 2024 ranking of all 50 U.S. states from a credit perspective.

Wyoming, another state heavily reliant on natural resources, jumped to the No. 2 slot, up nine places from a year before. Pandemic hot spots Florida dropped to No. 3 and Texas fell to No. 6.

"We had, prior to the pandemic, clearly seen some migration patterns away from the Northeast to areas like Florida and Texas, and the Mountain West states," said Karel Citroen, head of municipal credit research at Conning, which manages a $6.4 billion in assets in its muni-bond portfolio.

"During the pandemic, those trends were amplified in that people had a lot more freedom to move because jobs had gone remote," Citroen said, adding that population growth is one of 13 elements, including a state's debt burden, home prices and economic growth, that it tracks for its annual rankings.

"Last year was the first year you saw a reversal, in that some states have gotten too expensive, so the math where people moved there for affordability doesn't work anymore," he said, while adding that fewer jobs remain fully remote and that more people have been boomeranging back to cities they left behind a few years ago.

Citroen pointed to the "flip side" of population growth - that receiving states need to spend to bolster services to newcomers. If the labor market deteriorates, the Conning team expects more workers to move back to larger metropolitan areas.

"What is really important is that states have to manage their budgets really well," Citroen told MarketWatch. He pointed to the drag of inflation and increased costs on state budgets, while also the surge in federal funding, stock-market gains and economic growth as offsets. "Living within one's means is really key here," he said.

Furthermore, unlike the federal government, states can't "print money" and are obliged by their constitutions to balance their budgets, Citroen said.

As exemplified by Hawaii, which saw deadly wildfires sweep through parts of Maui last year, states also need to manage climate risks. Hawaii dropped to the bottom of Conning's ranking for 2024.

Barclays researchers on Monday said recent "high-profile and extremely damaging wildfires" appeared to be impacting "investor perception about the safety" of electric utility muni bonds. The first quarter already saw a 1 million-plus-acre fire in western Texas, they noted, putting the acreage burned ahead of normal levels for the year.

Billionaire investor Warren Buffett was born in Omaha, which also has long been the headquarters of his conglomerate Berkshire Hathaway Inc. (BRK.A) (BRK.B). In his annual letter to shareholders in February, Buffett raised concerns about wildfire risks and potential vulnerabilities of utilities in states prone to them.

The ICE BofA US Municipal Securities Index on Monday was up 2.8% on a one-year basis, while the ICE BofA US Corporate index was 4.7% higher, according to FactSet.

Shares of the iShares National Muni Bond ETF MUB was 0.3% lower from a year ago, while the Vanguard Tax-Exempt Bond ETF VTEB also was 0.3% lower.

-Joy Wiltermuth

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06-04-24 1106ET

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