The WSJ reports that the National Conference of State Legislatures projects states will increase cash reserves collectively by $3.4b to $41.4B by the end of the current fiscal year. The increase in cash reserves is the result of increased tax rates and an improved private sector labor market as well as increases in property values. If the projection holds, the WSJ reports, cash reserves would be roughly 9% of state revenues, the highest since 2008. SNWAM research agrees that some states are repairing their balance sheets and we are projecting budget surpluses. A healthy cash reserve is a credit positive for state governments. However, improvement in cash reserves comes after a period of the greatest retrenchment in government civilian employment since just after World War II. The WSJ reports in another article that state and local governments will come under further pressure as sequestration and further Federal budgets reduction begin to take effect. It is estimated that about one quarter of all state and local government funding comes from the Federal government. As a result, some governors are looking to further add to reserves. The question remains how states will balance current level of services, infrastructure spending and future liability management in the face of budget surpluses and building cash reserves. In our opinion, the uncertainty of Federal government spending would support the continued building of cash reserves and would look at states favorably if they continue to raise cash balances.