The 10 states deemed to be less fiscally resilient are California, Connecticut, Florida, Illinois, Massachusetts, New Jersey, New York, Pennsylvania, Washington and Wisconsin. The ratings firm's assessment was based on the states' 2016-2017 budgets.
Pennsylvania, Michigan and Florida are considered key states in the presidential contest with a combined 65 electoral votes, or almost one quarter of the 270 needed to win the White House.
Wisconsin voted for President Barack Obama in 2008 and 2012 and for Democrats in other election cycles, and that state is once again considered important to win this year with its 10 electoral votes.
The good news for Democratic presidential nominee Hillary Clinton is recent polls have shown she has a double-digit lead in the latest Pennsylvania polling and has taken a lead on Republican presidential challenger Donald Trump in Michigan and closed the gap in Florida. Clinton began a two-day visit to the battleground state of Florida on Monday; Trump has toured swing states such as Pennsylvania and Michigan in recent weeks.
In its analysis, S&P calculated the primary general fund tax revenue of the 10 states with the most tax-supported debt outstanding and found these states could experience a collective revenue shortfall of $27.1 billion, or 7.7 percent, in a recession of moderate severity. Primary general fund tax revenue can include everything from personal income and corporate income taxes to sales taxes.
"Of the 10 we sampled, Illinois, Pennsylvania, New Jersey, and Connecticut are the four states most susceptible to significant fiscal stress," S&P stated. "Budget reserves in these states equal less than half of the potential revenue underperformance that we estimate is possible in the first year of a recession of moderate intensity."
In a recession scenario, S&P estimated Pennsylvania would have a revenue miss of 4.1 percent based on general fund revenue projections.
"In our view, Pennsylvania is not well-positioned for a recession given the depletion of budget reserves and elevated fixed costs," said Petek. "While several years have passed since the official end of the last recession, slow economic growth has not kept pace with growing expenditures, and the commonwealth has continuously enacted structurally imbalanced budgets."
New Jersey's economic conditions are improving on some fronts but S&P said growth continues to lag the nation as a whole.
"In line with slow economic growth, growth in revenues has not been sufficient to match expenditure growth, which is somewhat masked by substantially reduced pension funding," the ratings agency said.
As for Connecticut, the fiscal stress projection estimates a 7.9 percent drop in general fund revenue as the result of a recession, equivalent to a $1.2 billion revenue shortfall. S&P said the fiscal positions of Connecticut as well as Illinois also are "vulnerable to a recession because of high fixed costs, which consume an especially large portion of tax revenue in a downturn."
The results of the analysis support S&P's view that states fare better when they leverage periods of economic growth to restore fiscal alignment and build budgetary reserves, S&P said.
On the other hand, S&P found the "best positioned states" out of the 10 sampled are New York, Washington and Florida as they "exceed the revenue shortfalls that we predict could occur in a recession scenario."
For Washington state, it estimates revenue would fall 3.9 percent. The simulated decline would be well below the one-year 10.8 percent shortfall in the previous recession.
Meanwhile, under S&P's recession simulation scenario, New York's 2017 revenue would fall by $2.1 billion, or a 3.1 percent decline from the budget, during the first year of a recession.
"A recession would pressure Florida's heavily sales-tax dependent general fund revenue, which is particularly exposed to large drops in personal income and personal consumption," S&P said. "However, although economic indicators in Florida would drop by relatively wide margins under our recession simulation, the state's accumulation of strong budgetary reserves bolsters its position in the event of a downturn."
There were three states — California, Massachusetts, and Wisconsin — that "fall in-between," S&P added. "Budget reserves in these states are insufficient to fully cover the revenue shortfall in our stress scenario, but equal at least 50 percent of the potential gap."
California is seen as "susceptible to boom-and-budget budgetary cycles, a byproduct, in our view, of its simultaneously high incomes, progressive income tax regime, and above-average poverty rate," Petek said. "During stock and technology sector booms, soaring capital gains incomes and bonuses accrue disproportionately to those at the top of California's income spectrum."
In an economic downturn, the impact of falling stock prices and smaller bonuses among California's high-earners could "ripple throughout its real estate market and broader economy. In our simulation, general fund tax revenue would fall short of what the enacted budget assumes by $14.7 billion (or a revenue miss of 7.9 percent) during the first year of a recession."