Ranking the States by Fiscal Condition

180 Pages Posted: 1 May 2019

See all articles by Eileen Norcross

Eileen Norcross

George Mason University - Mercatus Center

Olivia Gonzalez

George Mason University, Department of Economics, Students; Mercatus Center at George Mason University

Date Written: October 9, 2018

Abstract

For the fifth and final year, we rank states according to their financial condition. On the basis of FY 2016 financial reports of the 50 states, this study ranks the states’ fiscal solvency using 13 indicators that assess the extent to which the states can meet their obligations. State finances are analyzed according to five dimensions of solvency: cash, budget, long-run, service-level, and trust fund solvency. These five dimensions are combined to produce an overall ranking of state fiscal solvency. Nebraska, South Dakota, Tennessee, Florida, and Oklahoma rank as the top five most fiscally solvent states. Kentucky, Massachusetts, New Jersey, Connecticut, and Illinois rank as the bottom five states. This ranking highlights the relative performance of the states in one year, but understand- ing financial health requires looking at the underlying objective performance of each state over time. We complement this year’s ranking with a 10-year trend analysis of the states’ financial performance. We find that although, on average, state budgets have not fallen to the lows they reached during the recession, they also have not quite improved to prerecession levels. There has been a slight decline in average state operating ratios since FY 2014, but most states are still able to match revenues with expenses. Long-term liabilities have, on average, increased over time. Long-term liabilities increased the most significantly in FY 2015, largely as a result of new Government Accounting Standards Board rules that require states to report unfunded pension obligations on their balance sheets. Unfunded pension liabilities remain an ongoing problem for the states, and their magnitude is only more transparently revealed by these reporting changes. Pairing these findings with what we have learned from the past four editions of this study, we conclude with recommendations for future research that emphasize pairing quantitative and qualitative data in context to analyze state financial condition.

Keywords: state fiscal health, financial ratios, state budget, state finance, state debt, public pensions, OPEB, state borrowing, municipal debt, fiscal solvency

JEL Classification: H2, H3, H7, M410, M420

Suggested Citation

Norcross, Eileen and Gonzalez, Olivia, Ranking the States by Fiscal Condition (October 9, 2018). Mercatus Research Paper . Available at SSRN: https://ssrn.com/abstract=3381208 or http://dx.doi.org/10.2139/ssrn.3381208

Eileen Norcross (Contact Author)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States
703-993-4930 (Phone)

HOME PAGE: http://https://www.mercatus.org/eileen-norcross

Olivia Gonzalez

George Mason University, Department of Economics, Students ( email )

Fairfax, VA
United States

Mercatus Center at George Mason University

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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