How's Your Fiscal Condition?

Hey! Thanks to Nolan Gray for bringing attention to this
Ranking the States by Fiscal Condition 2017 Edition

Research Paper / Study July 11, 2017

The fiscal health of America’s states affects all its citizens. Indicators of fiscal health come in a variety of forms—from a state’s ability to attract businesses and how much it taxes - to what services it provides and how well it keeps its promises to public-sector employees.

BLOGGER NOTE: Image insert shows CAFR for Mesa AZ 

 

To get a sense of a particular state’s fiscal outlook requires consulting a state’s comprehensive annual financial report (CAFR), which, at hundreds of pages, is unwieldy for even the most dedicated analyst.

PLEASE NOTE: The lessons from this year’s study demonstrate that policymakers should take stock of both their short- and longtermfiscal health before making public policy decisions.

The quality of financial reporting also plays a large role in what is known about the states’ fiscal health. This report attempts to make available financial information more accessible while also stressing the importance of improved reporting. These metrics, when used alongside other information, are intended to help policymakers identify trends in state finances and respond with policies to ensure short-run solvency and long-run fiscal stability.

 

But in the Mercatus Center at George Mason University’s “Ranking the States by Fiscal Condition,” now in its fourth year, Eileen Norcross and Olivia Gonzalez calculate indicators of fiscal health for all 50 states. Based on states’ 2015 financial statements, Florida ranks first as the most fiscally healthy state, while New Jersey ranks the lowest.

The study 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. With refinements in its methodology, the 2017 edition updates the version that the Mercatus Center published in 2016. It presents information from each state’s audited financial report in an easily accessible format and is the most comprehensive snapshot of state financial health to date.

Growing long-term obligations for pensions and healthcare benefits continue to strain the finances of many state governments, and revenue drawn from volatile sources . . . continues to threaten the fiscal health of top-performing states. Both trends highlight the fact that state policymakers must be vigilant to consider both the short-term and the long-term consequences of their decisions.

ARIZONA IS #33

The study also highlights how recent changes in accounting standards affect what states reveal on their financial statements and what we know about the states’ financial health as a result. Due to the implementation of new government accounting standards, states are now reporting more of their pension liabilities on the balance sheet, which increases the average long-term liability metrics for the states. States have not applied these standards consistently, however, revealing that there is still room for improvement in the reporting of state financial information.

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, reproduced from page 29 of the study, 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 large are each state’s unfunded pension and healthcare liabilities?