Skip to comments.Think Your State Is Fiscally Sound? Think Again
Posted on 10/11/2018 8:06:19 AM PDT by SeekAndFind
It's that time of the year again when we find out how deep in the red our country is thanks to the 2018 edition of the Mercatus Center State Fiscal Rankings. The study authors, Eileen Norcross and Olivia Gonzalez, find that when you rank states by their fiscal health, you can identify the best and worst state. But the scariest finding is that no state is really fiscally healthy.
Norcross and Gonzalez are very transparent about each decision behind the study methodology. They use states' own audited financial data to create five different indices (cash solvency, budget solvency, long-term solvency, service-level solvency and trust-fund solvency) to analyze and create the overall ranking. The final product is the result of many factors and deliberative choices.
Based on the most recent government data available for all states, this year, the top five most fiscally solvent states, from one to five, are Nebraska, South Dakota, Tennessee, Florida and Oklahoma. One thing these states have in common is that they have some cash on hand and relatively low short-term obligations. That makes them relatively healthier than others.
The bottom five states in terms of fiscal solvency, from 46 to 50, are Kentucky, Massachusetts, New Jersey, Connecticut and Illinois. These states face large debt obligations and have too little cash on hand to pay short-term bills. It doesn't take a professional accountant to understand that those bad fiscal habits could spell disaster for states during a recession or emergency.
Again, the study's most important finding is that being at the top makes you healthier than others by comparison but not necessarily healthy overall. In fact, the authors show that every single state would be in trouble if another financial crisis were to happen.
For instance, the data show that long-term liabilities have increased over time on average, with a pretty big jump since 2015. This is partly due to a recent transparency requirement by the Governmental Accounting Standards Board that makes states report unfunded pension obligations on their balance sheets. Under the older standards, states didn't have to report the true size of their pension liabilities. To understand the impact of this change, consider the following: From 2006 to 2014, long-term liabilities per capita grew by about 4 percent annually, on average. Between fiscal year 2015 and fiscal year 2016, that average ballooned by a sobering 54 percent.
The older standards were obviously inadequate to expose the true size of the pension liabilities faced by most states. The new standards, however, aren't perfect either. For instance, until next year when a new requirement will come into effect, states haven't had to report their health care liabilities, which allowed them to appear more fiscally fit than they truly were and are.
Look at Nebraska, the state in first place overall. Upon closer inspection, the state ranks 37th in budget solvency, which means that it spent more money than it made in tax revenue in 2016. Nebraska's pensions show that it's in a worse position than advertised. The state reports unfunded pension liabilities of $1.17 billion. Yet when valued on a true market basis, it's actually underfunded by $20.9 billion. Nebraska does better than most states on underfunding pensions, but it has room to improve. Its weakening budget position and growing unfunded pension obligations place more pressure on fiscal health than its top rank lets on.
Just because your state is ranked higher doesn't mean you're ready for a downturn.
Alaska is another interesting case study. The state was on the top of the ranking for several years in a row, due to its oil revenue. However, in previous reports, Norcross and Gonzalez warned that an overreliance on oil and the restrictions put on the use of oil revenue could be problematic in an age of decreasing oil prices. Sure enough, a drop in oil prices confirmed their fears. Alaska's fiscal ranking slid from first to 11th in just two years.
For this reason, I'd caution the healthier ranked states to temper their excitement. That top ranking is a little like a kid bragging about getting the best grade in math when it's a C+ and the class average is closer to an F.
All a government has to do is give the people freedom to use their money as they see fit and they would be on top again.
No state is really in sound fiscal shape. At least not as you’d define that in private business or for your family.
Makes no difference. We all learned in 2008 that if you go to Congress with a sufficiently butt-puckering Chicken Little tale of impending doom you WILL get a bailout.
You mean the state (ie all of them) that hires far too many bureaucrats, pays them entirely too much and keeps them on salary and benefits until a ripe old age?
And if the polls are correct and Florida elects a socialist governor, the fall will be spectacular.
“You mean the state (ie all of them) that hires far too many bureaucrats, pays them entirely too much and keeps them on salary and benefits until a ripe old age?”
I recall back home, people who could not find gainful employment often took a civil service exam and got a make-work government job typing or filing. Automatic promotions ensue, and soon you have incapable people promoted to managers or supervisors. You can’t fire them because of the obscene public sector union, so we end up in a true kakistocracy.
We're doomed. I've told my wife that when the people with money start to flee, they will put a tax on home sales so that if you do try to get out you will lose all the value in your home. Wait for it. She think I'm probably right but she still won't move.
With the exception of Oklahoma the top five are states without an income tax.
I dont think its a coincidence
Of course we’re not. Saw someplace in the past couple of days that UNR medical center is offering minor care to poor folks and people who “don’t have any ID” or “SS number”. Surely they aren’t using tax dollars to treat “undocs” are they? Grrrrrr! Anyone got and ICE hat and windbreaker I could borrow? You know, just to stand outside. I anyone were to ask just tell them I’m just a good samaratin there ‘I’n ‘C’ase of ‘E’mergency.
My grandfather ran a county government department for 35 years. He ended up tearing out what was left of his hair. He had to staff it with a bunch of people who likely couldn’t hold a job anyplace else in America.
“Here, this is Ward Chairman So-And-So’s drunken brother-in-law. He works for you now.”
Nebraska has a balanced budget requirement and a one-body Unicameral legislature that gets the job done at half the cost and far less time than any other state. I’d challenge most private businesses or families to do as well.
well we just gave away billions so our loco teachers can get a 16% raise and now they’re talking income tax here in Washington....
Friends are moving back to IL to be near 8 grandkids. They are getting a 4500 sq ft house for 250k but the taxes are 10k per year. The taxes can only go up. The house was on the market 600 days.
Family connections kill you if you try to leave the Garbage State.
NJ should be investigated under the RICO statute.
Who cares. Someone else is responsible, not me. BTW, the rich don’t pay their fair share. /sarc
Just wait until Governor Gillum takes Florida to #49 and competing with Illinois for #50. God help us.
Here in Arkansas we are probably in much better shape than most. The state cannot by law issue any Debt except under very narrow circumstances and then only if it passes a popular vote. In addition by Law we have to have a balanced budget no matter what. If Tax revenues come in less than anticipated every state Department must automatically reduce their expenditures to stay in budget.
Now of other states and the federal government had to do what our state does we would have a lot less problems.
Link to survey:
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.