Think Your State Is Fiscally Sound? Think Again

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

You can read the rest of this article at: https://reason.com/archives/2018/10/11/think-your-state-is-fiscally-sound-think