(Related: 20 Best US Cities for Retirement: 2018)
The study ranked states according to: 1) Cash solvency, or ability to cover short-term bills; 2) Budget solvency, or ability to cover a fiscal year’s worth of spending with revenues without a shortfall; 3) Long-run solvency, or ability to meet long-term spending and weather economic shocks; 4) Service-level solvency, or “fiscal slack” to increase spending if citizens demand more services; and 5) Trust fund solvency, or the status of unfunded pension and health care liabilities, as well as other debt.
State Budget Woes
The study found that typically the worst fiscal states experienced ongoing structural deficits and underfunded pensions. Some states with heavy reliance on oil tax revenue, like Alaska, North Dakota and Wyoming, had dramatic swings in cash and revenue levels. Others that did implement major tax reform had mixed results: Indiana (#21) and North Carolina (#9) experienced neutral or positive impacts, while Kansas’ famous tax reform left it in worse fiscal condition (#17).
Other findings showed some trends: State budgets overall are still below pre-recession levels, long-term liabilities have, on average, increased over time, and underfunded pension liabilities remain an ongoing problem.
However, for those at the bottom, there’s good news: The study concludes the fiscal problems of all states are not “insurmountable.” Policymakers should take note.
The Mercatus Center is a free-market oriented think tank whose board includes Charles Koch; Richard Fink, former executive vice president of Koch Industries; Brian Hooks, president of the Charles Koch Foundation; and Edwin Meese, who served as attorney general in the Reagan administration.
Check out the gallery for the 12 states in the best fiscal shape, according to the Mercatus Center.
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