States bolster reserve protection ahead of federal policy-driven credit pressure
Excerpt from the article:
(February 3, 2026) Sustained federal policy changes are adding to credit pressure, though state reserves may cushion near-term funding shocks, according to a municipal bond investor and a public finance researcher.
Many munis now hold larger reserves than in the past, with 30% fund balances-and sometimes over 50%-showing up in the AA and higher universe, said Patricia Healy, senior vice president and director of fixed income research at Cumberland Advisors.
Relatively strong rainy day funds are common for many states at this stage, said Lucy Dadayan, principal research associate with the Urban-Brookings Tax Policy Center at the Urban Institute. California, for example, has proposed a USD 3bn deposit to its rainy day fund, lifting total reserves to about USD 14.4bn in FY27 (starting 1 July).
Elevated reserve levels have been supported by increased disclosure across the municipal market, improved pension and other post-employment benefit funding, and greater government sophistication, Healy said.
Click here to read the full article on the Debtwire website.
Patricia Healy, CFA
Director of Fixed Income Research
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