From Arkansas to California state treasuries are feeling flush. California is a big winner with revenue estimates for FY 2013 ranging from $1.0 billion to $3.0 billion above initial projections. Arkansas ended its fiscal year with a $300 million surplus. Virginia and Maryland, combined, were able to increase highway and transit projects by $1.0 billion. So where is the additional revenue coming from? Is the trend of declining state revenue and expenditures reversing? To be sure, the prolonged moderate economic expansion is helping state coffers, and changes in federal income tax rates at the end of 2012 pulled an estimated $1.5 trillion of capital gains, dividends and other income into the fiscal year just ending. The Rockefeller Institute estimated state revenues increased 25.2% at the end of 2012, based on quarterly tax payments. It is our opinion that the change in federal tax policy is the driving force of the robust revenue estimates being reported across the nation, rather than any material changes in economic activity. This one-time revenue event is a near-term credit positive for higher education and community college credits in California and Oregon. The challenge with one-time revenue events is how the state spends the cash, saves it, or changes its fiscal policy. We are watching California very closely to see what management will do with its revenue surplus. History tells us the State has had limited success saving resources from one-time events. If management is able to add to reserves, pay down debt or reduce liabilities, it could be a long term credit positive for the state.