Fiscal Condition of the 50 States

January 20, 2014

Alaska, South Dakota and North Dakota are in the best overall fiscal condition of the 50 states, says Sarah Arnett of the Mercatus Center.

Arnett's research looked at four factors -- cash solvency, budget solvency, long-run solvency and service-level solvency -- to rank the 50 states according to their fiscal condition.

Cash solvency looks at how easily a state can access cash and pay its bills in the short term.

  • Most states have enough cash on hand to meet short-term obligations, the most solvent states being Alaska, Ohio, South Dakota, Florida and Montana.
  • The least solvent states are Maine, Pennsylvania, Connecticut, California and Illinois.

Budget solvency looks at whether a state can create enough revenue to cover a fiscal year's worth of expenditures. The states vary wildly in their levels of budget solvency, but Alaska, North Dakota, Wyoming, Wisconsin and Utah lead the pack, while Illinois, Hawaii, West Virginia, Delaware and New Jersey take up the rear.

Long-run solvency is a measure of a state's ability to use revenue to cover its expenditures, including its long-term obligations (pension benefits, infrastructure costs, etc.).

  • Of the 50 states, Nebraska, Alaska, Indiana, Tennessee and Alabama have the best long-run index.
  • California, Massachusetts, Connecticut, Illinois and New Jersey, on the other hand, are least prepared to cover their bills over the long-term.

Service-level solvency, which looks to see whether state governments can provide their citizens with a sufficient level of services, uses taxes and revenue and expenditures per capita to determine how well a state meets this standard.

  • The top five states for service-level solvency in 2012 were Nevada, Florida, New Hampshire, Missouri and Utah.
  • Rounding out the bottom five were Delaware, Vermont, Wyoming, North Dakota and Alaska.

Overall, the states in the best fiscal condition are Alaska, South Dakota, North Dakota, Nebraska and Wyoming. At the bottom of the list are California, Massachusetts, Illinois, Connecticut and New Jersey. Connecticut and New Jersey are in the worst shape for the same reasons: these states have had several years of poor financial management, expenditures that outstrip tax revenue, high debt levels and billions of unfunded pension liabilities.

Source: Sarah Arnett, "State Fiscal Condition: Ranking the 50 States," Mercatus Center, January 14, 2014.

 

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