Politics

How Does Your State Rank for Fiscal Solvency?

from – Mercatus Center at George Mason University – by Eileen Norcross

A new study for the Mercatus Center at George Mason University ranks each US state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pen­sions and healthcare benefits. This 2016 edition updates the version the Mercatus Center pub­lished in 2015. Using the approach pioneered in 2015, the 2016 edition presents information from each state’s audited financial report in an easily accessible format, this time including Puerto Rico to provide a benchmark of poor fiscal performance.

Growing long-term obligations for pensions and healthcare benefits continue to strain the finances of state governments, highlighting the fact that state policymakers must be vigilant to consider both the short-term and the long-term consequences of their decisions. Understanding how each state is performing in regard to a variety of fiscal indicators can help policymakers as they consider the consequences of policy decisions.

The study also highlights some of the limits of the financial data reported by state governments. States release these data years after they are most relevant, and because the information is highly aggregated, analysts and the public have difficulty discerning the true fiscal position of any state.

FR16-OVERALL-Map-v8_0

SUMMARY AND KEY FINDINGS

The financial health of each state can be analyzed through the states’ own audited financial reports. By looking at states’ basic financial statistics on revenues, expenditures, cash, assets, lia­bilities, and debt, states may be ranked according to how easily they will be able to cover short-term and long-term bills, including pension obligations.

This ranking of the 50 states and Puerto Rico is based on their fiscal solvency in five separate cate­gories:

  • Cash solvency. Does a state have enough cash on hand to cover its short-term bills?
  • Budget solvency. Can a state cover its fiscal year spending with current revenues, or does it have a budget shortfall?
  • Long-run solvency. Can a state meet its long-term spending commitments? Will there be enough money to cushion it from economic shocks or other long-term fiscal risks?
  • Service-level solvency. How much “fiscal slack” does a state have to increase spending if citizens demand more services?
  • Trust fund solvency. How much debt does a state have? How large are its unfunded pen-sion and healthcare liabilities?

TOP FIVE STATES

Alaska, Nebraska, Wyoming, North Dakota, and South Dakota rank in the top five states.

  • Pensions and health care will continue to be long-term challenges. While these states are consid­ered fiscally healthy relative to other states because they have significant amounts of cash on hand and relatively low short-term debt obligations, each state faces substantial long-term challenges related to its pension and healthcare benefits systems.
  • Unpredictable revenue sources may play a role in short-term fiscal health. The top-performing states owe some of their success to unpredictable revenue sources. Since the most recent data is from fiscal year 2014, it appears as though these states are very well off, but declining oil prices and the budget crises that are currently unfolding in Alaska and other oil-producing states highlight the danger of expanding revenue based on volatile rev­enue sources.
  • The top five states have changed since last year. Wyoming moved from sixth place last year to third place this year, pushing Florida out of the top five. The four remaining states were in the top five last year, but this year Nebraska moved to second place, demoting North Dakota and South Dakota.

BOTTOM FIVE STATES

Kentucky, Illinois, New Jersey, Massachusetts, and Connecticut rank in the bottom five states, largely owing to the low amounts of cash they have on hand and their large debt obligations.

  • Each state has massive debt obligations. Each of the bottom five states exhibits serious signs of fiscal distress. Though their economies may be stronger than Puerto Rico’s, allowing them to better navigate fis­cal crises, their large liabilities still raise serious concerns.
  • Unfunded liabilities continue to be a problem. High deficits and debt obligations in the forms of unfunded pensions and healthcare benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.
  • The bottom five states have changed since last year. Kentucky’s position has declined, plac­ing it in the bottom five this year. New York is no longer in the bottom five. New Jersey and Illinois improved slightly, but remain in the bottom five. Connecticut and Massachusetts also remain in the bottom five, in slightly worse positions than last year.

BIG MOVERS

To be considered a “big mover,” a state must have shifted position by more than five spots between the 2015 and 2016 editions (which use the latest available data, from fiscal years 2013 and 2014, respectively). A change in ranking of five or fewer places is not considered a significant change in the underlying metrics.

For the most part, states’ overall fiscal performance remained relatively constant. Only Delaware and Iowa dropped significantly in the overall ranking of fiscal condition. But there were big movers in each of the five categories that make up the overall ranking:

  • Colorado, Delaware, New Mexico, and Iowa all moved down in the ranking of cash sol­vency, while Maine and Minnesota both improved.
  • Sixteen states changed their ranking within the budget solvency category; six improved signifi­cantly and ten worsened. (Budget solvency is more prone to large changes in ranking than the other categories because of the fluctuation in surpluses or deficits from year to year.)
  • Two states—Maine and North Carolina—experienced a significant shift in their long-run sol­vency ranking. Maine fell by eight spots and North Carolina improved by seven spots.
  • There was little movement in the service-solvency ranking, except in the case of North Caro­lina, which improved its position by six places.
  • Colorado and Arizona both improved their trust fund solvency ranking. Montana, New Jer­sey, and Washington moved down in this ranking.
CONCLUSION
 

Updating the fiscal condition of the states with another year of data shows that most states’ fiscal performance remains relatively constant, but the signs of fiscal stress persist. Underfunded pen­sions and healthcare benefits continue to put pressure on state finances. Even states that appear to be fis­cally robust—perhaps owing to large amounts of cash on hand or revenue streams from natu­ral resources—must take stock of their long-term fiscal health before making future public policy deci­sions. These fiscal pressures point to areas for policymakers to direct their efforts. They also highlight areas where improved financial reporting could give the public a clearer picture of states’ fiscal health.

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72 Comments on "How Does Your State Rank for Fiscal Solvency?"

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Note that most of the states with the the worse fiscal solvency are solid Democrat states. California #44, all Northeastern states & all New England States except New Hampshire are 35 or above. Most of the other Democrat states are high also. Coincidence? I don’t think so!!!

The democrats still don’t get it. They will keep going until the whole country is lost and anarchy will be upon use. All you free loaders enjoy it will you can, the day of reckoning is coming and you will be the first to be in the street. The democrats are not doing you a favor by giving you free stuff. There is no money tree, just the blood, sweat and tears of others. Enjoy it while you can. The cliff is not far away.

Isn’t it odd that, Colorado was the first State to legalize Marijuana, now we are ranked 22nd. Our population increases by more than 2000 per month. My point is legalized marijuana doesn’t solve problems it creates problems.

The dumacrats rob the store and mismanagement the business so bad in their quest to buy votes, that when the Republicans get back in power they have to stop all of the entitlements to become solvent again. Then the dums through their press toadies make it look like the Republicans are cruel and evil for hurting the poor by taking away the freebies, or not increasing them. It is all about personal power and wealth for the dumacrats, not the people that they claim to love and care so much about. If the poor (kept poor by the dums) ever started to do well and make money, they would no longer vote for the dumacrats!!!!

Moving from my native California with no regrets. It use to be a great state but finding a smooth road is nearly impossible and continued benefits for illegals and pay increases for the legislature will drive it into the Pacific Ocean. Looking forward to starting a new adventure in conservative Idaho where they are required to balance the budget annually. Cost of living outside of California is at least 30% lower.

Wow! … And to think I left damp cold, hot and muggy, mosquito infested Connecticut, #50, to move to sunny, dry California, #44! … So I actually improved my lot in life??? … It sure don’t feel like it! … I’m just suffering in nicer weather.

Thanks Rick Scott. Good job.

Isn’t it significant that most of the states in Financial trouble are liberal run states. give Hillary a chance and she will add the conservative states. The most liberal, The highly liberal states, California, Massachusetts and Connecticut are disaster states..

Pretty sure most of the top 10 healthiest states have NO INCOME TAX and Republican leadership!
I like Florida and Tennessee. Great states! Interesting!

I live in Louisiana where we sink slightly below the fiscal norm, but the government pretty much leaves me alone. I don’t live in California, where they sink way below the fiscal norm and the government sticks its nose into every aspect of one’s life. We go there once a year to visit grandkids. I’m happy just where I am, fiscally sound or not.

I have a Question – China has total Gun Control – but since 2000 China has had 20 mass killings – According to Obama and Hillary Gun control will stop Mass Killings – Why has it not worked in china?

Mr La Vant ,your absolutely correct, furthermore drug testing individuals on assistance is also needed.

I was pretty sure that passing ACA would be a fiscal disaster for the USA-turns out to be the case as costs for this continue to rise. When the govmt runs something like this there is more waste, more regulations Etc. Based my opinion on my observations and medical people I know. It didn’t take long to find out that Obama Would give away so much money to others to bankrupt us while not taking care of our homeland.

Living in Indiana, I disagree with Gov. Pence that we are solvent! Our roads and bridges need serious repair and our schools hover on bankruptcy! How is that being solvent? All because the dumacrats drove manufacturing out of the USA with unions, epa, osha, and the avalanche of forms and permits required to start a new manufacturing plant. We will never be the same until we get our manufacturing back. Flipping burgers and being Walmart greeters, are not career jobs that create stable neighborhoods and national wealth.
The dumacrats have ruined us with socialism!

Besides fiscal solvency, my home state Wyoming, also has a another distinction, firearms friendly. You can carry either open or concealed without big brother’s permission. It seems firearm friendly goes along with sound monetary policies.

But am I happy with Wyoming’s fiscal solvency, no it could be better. We have politicians like other states and most like to spend other people’s money.

Iowa was rated by another survey as being 8th in the nation for fiscal solvency-strength. We are required by law to have a balanced budget every year, using only 99% of projected revenues, with the remaining 1% put into a Rainy Day Emergency Fund to cover shortfalls after the budget is set to cover govt expenses. If the governor cuts back the state budget after the budget is approved, he must either have the Legislature come back to do it or make unilateral, across-the-board cuts to all spending areas. The rainy day fund use and A-T-B cuts were done by 2 DEM governors, 3 times by Vilsack, and once by Culver. Republican Governor Branstad brought the law in 1992 through negotiations with the DEMs and never used it, but only filled the RDEF coffers. If people study the state fiscal issues carefully, you will see it is DEM leadership that… Read more »
About 15 yrs ago I heard a comment from a radio talk show host: “Show me a city run by a Democrat, and I’ll show you a city in red ink.” —seems to be accurate, and also to hold true for states and our country as a whole. The elephant in the room when it comes to politics is the national debt. Not addressing it is going to lead to catastrophic events. The huge pensions for govt workers is not sustainable, neither is healthcare spending. We need less regulation, fewer govt workers, making less money and with smaller pensions. Also, we don’t have a healthcare system, we have a “disease care” system. In a true “healthcare” system the majority of money would be going towards prevention i.e.personal health education, nutrition, exercise, manual therapy etc, and not into drugs and surgeries, where it is currently being spent. Prevention is so much… Read more »

Stated should get out of the pension business. Offer 401 or similar plans to augment SS. The states do not put pension money aside the year incurred as they should.

Sadly this does not break out the amount of debt dumped on each state by the federal governments program of pushing illegal immigrants onto various states to feed, house, school, etc. Many states have had unexpected large burdens in recent years that was not of their choosing.

Thank you Mr. Malloy and the rest of the loser Democrats for moving the once-Great State of Connecticut to spot number 50 on the list of the most overall insolvent state in the nation. It’s now official in the new study from Mercatus Center. Hope your all real proud of yourselves. Frankly, with all of your reckless spending and give-aways, I’m surprised it didn’t happen sooner. Thanks again, LOSERS.