New research published by the Mercatus Center takes a look at the ability of each state to meet its obligations, both financial (such as state employee wages and pensions) and service-related (such as public safety and education), and ranks each state by its fiscal condition. Dr. Sarah Arnett weights four different indices – cash solvency, budget solvency, long-run solvency, and service-level solvency – in order to create an overall State Fiscal Condition Index. Here are some highlights from the study:
- Despite Gains In Tax Revenues And Pension Assets, The Long-Term Outlook For States’ Fiscal Condition Is Negative. Fiscal simulations conducted by the Government Accountability Office (GAO) “predict that states will have yearly difficulties balancing revenues and expenditures due, in part, to rising health care costs and the cost of funding state and local pensions.”
- There Is A Substantial Difference In State Fiscal Conditions Between The Top And Bottom Performers. The study notes that “while rankings inherently have top performers and bottom performers, there is a substantial difference in state fiscal conditions.” While most states show neither overt weaknesses nor strengths, “the bottom five performers had much weaker performance across nearly all the indicators, especially those related to cash, budget, and long-run solvency.”
- The States With The Worst Fiscal Condition Have Had Years Of Poor Financial Management Across The Different Dimensions Of Fiscal Condition. The study specifically cites New Jersey and Illinois as examples, noting that expenditures in both states have outstripped revenues, the use of budget gimmicks to “balance” annual budgets, significant debt levels, and underfunded pensions.
To read the full report and a discussion of each of the component indices, click here.