With the sequester set to provide some sanity to the U.S. debt situation, financial professionals and the public at large are questioning how the cost savings (reducing unnecessary federal spending) are going to affect connected political entities.
That’s exactly what professionals at bond rating agencies have been doing recently, with, for example, Moody’s recently releasing bond rating updates for closely connected U.S. municipalities, such as Charleston, South Carolina, Indianapolis, Indiana, and the state of Missouri. What states are most at risk and which measures are most used? Well, here are some of the figures bond rating agencies are looking at.
The first measure is federal employment as a percent of total statewide employment. Which area would you guess has the highest exposure to federal expenditure risk? Perhaps not surprising, Washington D.C. contains the highest measure of risk, with an incredible 28 percent of employees within the boundaries dependent on federal checks.
| State | 12/31/2008 | 12/31/2009 | 12/31/2010 | 12/31/2011 | 12/31/2012 |
| DC | 27.5% | 28.5% | 29.6% | 29.2% | 28.5% |
| HI | 5.2% | 5.6% | 5.9% | 5.9% | 5.8% |
| MD | 4.9% | 5.2% | 5.6% | 5.7% | 5.7% |
| AK | 5.2% | 5.3% | 5.4% | 5.2% | 4.9% |
| VA | 4.2% | 4.6% | 4.8% | 4.8% | 4.7% |
| NM | 3.6% | 3.9% | 4.2% | 4.0% | 3.9% |
| OK | 2.8% | 3.0% | 3.3% | 3.2% | 3.1% |
| WV | 3.0% | 3.2% | 3.3% | 3.1% | 3.1% |
| MT | 3.1% | 3.3% | 3.5% | 3.2% | 3.0% |
| AL | 2.6% | 2.9% | 3.1% | 3.1% | 3.0% |
| SD | 2.7% | 2.9% | 3.0% | 2.8% | 2.8% |
| UT | 2.8% | 3.1% | 3.2% | 3.0% | 2.7% |
| GA | 2.4% | 2.6% | 2.8% | 2.7% | 2.6% |
| WY | 2.5% | 2.7% | 2.9% | 2.7% | 2.5% |
| WA | 2.4% | 2.6% | 2.7% | 2.6% | 2.5% |
| ME | 2.4% | 2.5% | 2.6% | 2.5% | 2.5% |
| VI | 2.2% | 2.3% | 2.3% | 2.3% | 2.4% |
| CO | 2.2% | 2.4% | 2.5% | 2.4% | 2.4% |
| MS | 2.3% | 2.4% | 2.5% | 2.4% | 2.3% |
| AZ | 2.1% | 2.3% | 2.5% | 2.4% | 2.3% |
| ND | 2.6% | 2.6% | 2.7% | 2.4% | 2.2% |
| RI | 2.1% | 2.2% | 2.3% | 2.2% | 2.2% |
| KY | 2.1% | 2.3% | 2.4% | 2.3% | 2.2% |
| VT | 2.0% | 2.2% | 2.3% | 2.1% | 2.1% |
| US | 2.0% | 2.2% | 2.3% | 2.2% | 2.1% |
| MO | 2.0% | 2.1% | 2.2% | 2.2% | 2.1% |
| ID | 2.0% | 2.2% | 2.3% | 2.1% | 1.9% |
| KS | 1.8% | 1.9% | 2.1% | 2.0% | 1.9% |
| TX | 1.8% | 1.9% | 2.0% | 1.9% | 1.8% |
| TN | 1.8% | 1.9% | 2.0% | 1.9% | 1.8% |
| FL | 1.7% | 1.8% | 2.0% | 1.8% | 1.8% |
| SC | 1.6% | 1.7% | 1.9% | 1.8% | 1.8% |
| PA | 1.8% | 1.9% | 1.9% | 1.8% | 1.8% |
| NC | 1.6% | 1.7% | 1.9% | 1.8% | 1.8% |
| CA | 1.7% | 1.8% | 1.9% | 1.8% | 1.7% |
| NE | 1.7% | 1.7% | 1.8% | 1.8% | 1.7% |
| AR | 1.8% | 1.9% | 2.0% | 1.8% | 1.7% |
| OR | 1.7% | 1.9% | 1.9% | 1.8% | 1.7% |
| LA | 1.6% | 1.7% | 1.8% | 1.7% | 1.6% |
| PR | 1.5% | 1.6% | 1.8% | 1.6% | 1.6% |
| NV | 1.4% | 1.5% | 1.7% | 1.5% | 1.6% |
| OH | 1.4% | 1.6% | 1.7% | 1.6% | 1.5% |
| MA | 1.5% | 1.5% | 1.6% | 1.5% | 1.5% |
| IL | 1.5% | 1.5% | 1.6% | 1.5% | 1.4% |
| NJ | 1.5% | 1.5% | 1.6% | 1.4% | 1.4% |
| NY | 1.4% | 1.5% | 1.5% | 1.4% | 1.3% |
| MI | 1.3% | 1.4% | 1.5% | 1.4% | 1.3% |
| DE | 1.3% | 1.4% | 1.5% | 1.4% | 1.3% |
| IN | 1.3% | 1.4% | 1.5% | 1.4% | 1.3% |
| IA | 1.2% | 1.3% | 1.3% | 1.2% | 1.2% |
| MN | 1.2% | 1.3% | 1.3% | 1.2% | 1.2% |
| NH | 1.2% | 1.2% | 1.3% | 1.2% | 1.2% |
| CT | 1.1% | 1.2% | 1.2% | 1.1% | 1.1% |
| WI | 1.0% | 1.1% | 1.1% | 1.1% | 1.0% |
Washington D.C. is, of course, an outlier. In 2012, the state with the second highest federal employment risk associated with federal expenditures is Hawaii, with more than one out of every 20 employees drawing a check from the federal government (6 percent). Hawaii is followed by Maryland (6 percent), Alaska (5 percent), and Virginia (5 percent). (Note: sorting of the previous and following figures is based on the entire 2008 to 2012 periods.) These figures are generally consistent throughout the previous five years.
Are there any political correlations in the federal employment figures, meaning are Republican leaning states decreasing faster or not increasing as fast because the current administration is Democratic? In other words, is there greater federal exposure risk for Republican leaning states? Well, although Democratic states generally have higher federal employment figures, there’s no readily available evidence that majority political control of a given state is connected with federal employment decisions.
A second measure of federal exposure risk is federal defense and non-defense procurement expenditures as a percentage of total gross state product. The ranking of states according to this measure is given in the following figure.
According to this measure of federal exposure risk, Virginia as the riskiest, with about 14 percent of its total state GDP dependent on federal procurement spending; Virginia is followed by New Mexico at around 10 percent, with Maryland, Alabama, Connecticut, Missouri, Alaska, Arizona, South Carolina, and Kentucky rounding the 10 states with the largest federal exposure risk.
| State | 12/31/2006 | 12/31/2007 | 12/31/2008 | 12/31/2009 | 12/31/2010 |
| AK | 16.4% | 16.0% | 17.1% | 20.8% | 20.5% |
| AL | 11.2% | 11.7% | 13.5% | 13.3% | 13.9% |
| AR | 8.4% | 9.1% | 9.0% | 10.3% | 9.7% |
| AS | 8.4% | 7.8% | 9.1% | 9.7% | 9.0% |
| AZ | 5.2% | 6.4% | 6.0% | 7.1% | 6.2% |
| CA | 4.0% | 4.2% | 5.9% | 5.9% | 5.4% |
| CO | 5.0% | 5.3% | 6.0% | 5.4% | 5.3% |
| CT | 5.2% | 5.3% | 5.0% | 6.0% | 5.2% |
| DC | 4.3% | 4.1% | 5.3% | 5.6% | 5.1% |
| DE | 3.4% | 4.2% | 4.8% | 6.8% | 5.1% |
| FL | 3.4% | 4.0% | 3.6% | 4.8% | 4.7% |
| GA | 5.0% | 3.2% | 5.0% | 5.7% | 4.7% |
| GU | 3.2% | 3.4% | 3.7% | 4.6% | 4.2% |
| HI | 3.5% | 3.6% | 3.7% | 4.2% | 4.2% |
| IA | 3.3% | 2.8% | 3.1% | 3.8% | 4.1% |
| ID | 1.5% | 1.9% | 1.9% | 3.9% | 4.0% |
| IL | 3.7% | 3.9% | 4.0% | 3.6% | 4.0% |
| IN | 3.7% | 3.9% | 2.3% | 3.1% | 3.7% |
| KS | 2.1% | 2.7% | 3.4% | 3.5% | 3.5% |
| KY | 2.9% | 3.0% | 3.5% | 3.6% | 3.4% |
| LA | 2.6% | 3.4% | 2.3% | 3.3% | 3.4% |
| MA | 3.4% | 3.4% | 5.0% | 3.2% | 3.3% |
| MD | 3.1% | 3.6% | 2.7% | 3.1% | 3.2% |
| ME | 4.7% | 2.2% | 2.9% | 4.1% | 3.1% |
| MI | 2.7% | 3.6% | 2.7% | 2.9% | 3.1% |
| MN | 2.4% | 2.4% | 2.7% | 3.1% | 3.1% |
| MO | 2.7% | 2.8% | 3.1% | 3.5% | 3.0% |
| MP | 2.1% | 2.4% | 2.3% | 2.5% | 2.9% |
| MS | 8.2% | 7.1% | 5.8% | 5.7% | 2.8% |
| MT | 2.0% | 2.1% | 2.2% | 2.4% | 2.4% |
| NC | 2.5% | 2.8% | 3.3% | 3.6% | 2.4% |
| ND | 1.9% | 1.8% | 1.8% | 1.9% | 2.4% |
| NE | 2.5% | 3.3% | 3.3% | 3.1% | 2.3% |
| NH | 2.2% | 2.0% | 1.9% | 2.7% | 2.3% |
| NJ | 1.6% | 1.6% | 1.6% | 1.9% | 2.2% |
| NM | 1.8% | 1.8% | 1.9% | 2.1% | 2.1% |
| NV | 2.2% | 2.6% | 3.4% | 3.2% | 2.1% |
| NY | 1.3% | 1.4% | 1.8% | 1.8% | 2.1% |
| OH | 1.6% | 2.4% | 1.7% | 2.5% | 1.9% |
| OK | 1.8% | 1.6% | 2.0% | 2.4% | 1.9% |
| OR | 2.0% | 1.9% | 2.0% | 2.0% | 1.9% |
| PA | 1.1% | 1.4% | 2.1% | 1.6% | 1.8% |
| PR | 1.6% | 2.0% | 2.3% | 2.4% | 1.8% |
| RI | 1.4% | 1.3% | 1.3% | 1.7% | 1.7% |
| SC | 1.6% | 1.4% | 1.4% | 1.5% | 1.7% |
| SD | 1.4% | 1.5% | 1.4% | 1.4% | 1.6% |
| TN | 1.4% | 1.3% | 1.4% | 1.7% | 1.5% |
| TX | 1.2% | 1.3% | 1.4% | 1.5% | 1.4% |
| US | 1.2% | 1.1% | 1.3% | 1.3% | 1.2% |
| UT | 0.8% | 1.1% | 1.4% | 1.5% | 1.1% |
| VA | 1.1% | 1.2% | 1.3% | 1.1% | 1.1% |
| VI | 0.8% | 1.0% | 1.0% | 1.0% | 1.1% |
| VT | 0.4% | 0.7% | 0.6% | 0.8% | 0.6% |
A third measure employed by evaluators of bond issuers is health care employment as a share of total employment. According to this measure, Rhode Island is the riskiest state, with an estimated 17 percent of its workforce connected to the health care industry; Rhode Island is followed by Maine, Pennsylvania, Massachusetts, and West Virginia. Perhaps interestingly, states that went for Obama in 2012 tend to have a higher percentage of health care employment than otherwise is the case.
| State | 12/31/2008 | 12/31/2009 | 12/31/2010 | 12/31/2011 |
| RI | 16.3% | 17.1% | 17.5% | 17.4% |
| ME | 16.3% | 17.1% | 17.1% | 17.2% |
| PA | 15.3% | 16.1% | 16.3% | 16.3% |
| MA | 14.8% | 15.6% | 15.9% | 16.0% |
| WV | 14.9% | 15.6% | 15.8% | 15.9% |
| VT | 15.0% | 15.9% | 15.9% | 15.9% |
| CT | 14.1% | 15.1% | 15.4% | 15.6% |
| NY | 14.4% | 15.1% | 15.4% | 15.4% |
| MN | 14.3% | 15.2% | 15.4% | 15.4% |
| OH | 13.4% | 14.4% | 14.8% | 14.8% |
| SD | 13.6% | 14.1% | 14.4% | 14.4% |
| DE | 12.8% | 13.7% | 14.1% | 14.3% |
| MT | 12.8% | 13.7% | 14.0% | 14.0% |
| MI | 12.9% | 13.9% | 14.1% | 14.0% |
| NH | 12.9% | 13.7% | 13.9% | 13.9% |
| ND | 13.8% | 14.1% | 14.3% | 13.8% |
| AR | 12.4% | 13.1% | 13.4% | 13.5% |
| MO | 11.8% | 12.6% | 13.3% | 13.5% |
| WI | 12.5% | 13.2% | 13.4% | 13.4% |
| NJ | 12.2% | 12.9% | 13.2% | 13.4% |
| MD | 12.2% | 13.0% | 13.2% | 13.3% |
| NM | 11.6% | 12.5% | 12.9% | 13.3% |
| FL | 11.8% | 12.7% | 13.0% | 13.1% |
| IN | 11.7% | 12.7% | 12.9% | 12.9% |
| KY | 11.9% | 12.6% | 12.8% | 12.9% |
| AK | 11.3% | 11.8% | 12.5% | 12.8% |
| LA | 11.6% | 12.3% | 12.6% | 12.8% |
| US | 11.6% | 12.4% | 12.7% | 12.7% |
| TN | 11.5% | 12.4% | 12.6% | 12.7% |
| KS | 11.6% | 12.3% | 12.5% | 12.7% |
| AZ | 10.6% | 11.7% | 12.4% | 12.6% |
| IL | 11.4% | 12.2% | 12.5% | 12.6% |
| ID | 10.6% | 11.7% | 12.3% | 12.5% |
| NE | 11.6% | 12.0% | 12.3% | 12.4% |
| OR | 11.0% | 11.9% | 12.2% | 12.4% |
| IA | 11.4% | 12.0% | 12.2% | 12.2% |
| OK | 11.3% | 11.9% | 12.2% | 12.1% |
| NC | 11.2% | 12.0% | 12.1% | 11.9% |
| TX | 10.4% | 11.2% | 11.6% | 11.6% |
| WA | 10.5% | 11.3% | 11.5% | 11.5% |
| MS | 10.1% | 10.7% | 11.0% | 11.2% |
| CO | 9.5% | 10.3% | 10.7% | 10.8% |
| VA | 9.7% | 10.3% | 10.6% | 10.7% |
| GA | 9.5% | 10.2% | 10.5% | 10.6% |
| AL | 9.7% | 10.3% | 10.5% | 10.6% |
| HI | 9.5% | 10.1% | 10.3% | 10.3% |
| CA | 9.1% | 9.8% | 10.2% | 10.3% |
| UT | 9.1% | 9.9% | 10.2% | 10.2% |
| SC | 8.7% | 9.4% | 9.7% | 9.7% |
| DC | 8.0% | 8.3% | 8.5% | 8.6% |
| WY | 7.7% | 8.3% | 8.6% | 8.6% |
| PR | 7.8% | 8.2% | 8.3% | 8.6% |
| NV | 7.0% | 7.8% | 8.2% | 8.5% |
| VI | 3.1% | 3.3% | 3.5% | 3.7% |
Now, what does this background have to do with the private equity industry? Well, the connection is largely indirect, with potentially increased interest rates, decreased effective demand, and worsened business conditions. In all, these three measures give individuals an idea of governmental entities with high and low degrees of federal expenditure risk.
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