July 11, 2015
Most U.S. state governments are nearly back to fiscal normalcy following the Great Recession of 2007–09, but there still exist troubling signs that states are ignoring the risks in unfunded programs, according to a new study from the Mercatus Center at George Mason University. States that appear to be fiscally robust must take stock of their long-term fiscal health before making future public policy decisions in order to avoid serious trouble if another financial crisis were to occur, the study warns.
Building on previous research about state fiscal conditions, Mercatus Center Senior Research Fellow Eileen Norcross ranked each state’s financial health based on short- and long-term debt and other key fiscal obligations. The study provides snapshots of each state’s fiscal health in an easily understood format.
Norcross analyzed the states’ own audited financial reports, which include basic financial statistics on revenues, expenditures, cash, assets, liabilities, and debt. The states were ranked based on five categories of fiscal solvency, including cash solvency, budget solvency, long-run solvency, service-level solvency, and trust fund solvency. These factors determine states’ ability to cover short- and long-term bills.
The top five states, which are considered fiscally healthy relative to other states, still face substantial long-term challenges with pension and health care benefits systems. The study attributes the high ranking of these five states — Alaska, North Dakota, South Dakota, Nebraska, and Florida — to their significant amounts of cash on hand and relatively low short-term debt obligations.
The bottom five states — Illinois, New Jersey, Massachusetts, Connecticut, and New York — have low amounts of cash on hand, large debt obligations, and high deficits. Based on their billions of dollars in unfunded liabilities, including unfunded pensions and health care benefits, they are at risk of “fiscal peril.”
Read the full Mercatus Center study, “Ranking the States by Fiscal Condition.”
