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. 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. 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.
Providing the fourth year of data, this edition develops trend lines that help identify structural strengths and weaknesses for each state. Growing long-term obligations for pensions and healthcare benefits continue to strain the finances of many state governments, and revenue drawn from volatile sources like oil production 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.
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