The Mercatus Center at George Mason University released its rankings of fiscal health of the 50 states and the Sunshine State leads the pack.
On Tuesday, the Mercatus Center unveiled its fourth annual “Ranking the States by Fiscal Condition” from Eileen Norcross and Olivia Gonzalez. Based on debt and other fiscal issues, including pensions and health-care benefits, Florida topped the list followed by North Dakota, South Dakota, Utah and Wyoming. New Jersey was at the bottom followed by Illinois, Massachusetts, Kentucky and Maryland.
Florida was ranked sixth in last year’s rankings and fifth in 2015.
“On the basis of its fiscal solvency in five separate categories, Florida ranks 1st among the US states for its fiscal health,” the study noted. “Florida performs well on all dimensions of solvency. On a short-run basis, Florida has between 8.19 and 10.01 times the cash needed to cover short-term obligations. Revenues exceed expenses by 7 percent, and net position improved by $279 per capita. On a long-run basis, Florida’s performance is also strong. Net assets are 10 percent of total assets, and long-term liabilities are 34 percent of total assets, or $2,303 per capita, roughly half the average for the US states. Unfunded pension obligations, on a guaranteed-to-be-paid basis, are $197.65 billion, or 22 percent of state personal income, and OPEB is 2 percent of personal income.”
Florida ranked second in term of cash solvency which the study defines as “enough cash to cover its short-term bills, which include accounts payable, vouchers, warrants, and short-term debt.” The Sunshine State is tenth in budget solvency which the study classifies as “whether a state can cover its fiscal year spending using current revenues.” Florida is 17th in long-run solvency which “measures whether a state has a hedge against large long-term liabilities” but it’s third in service-level solvency which “measures how high taxes, revenues, and spending are when compared to state personal income.” The Sunshine State is eighth in trust fund solvency which “measures how much debt a state has.”
Looking at the top states, Norcross and Gonzalez looked at what they had in common.
“Low debt and a strong cash position help maintain fiscal discipline,” they noted. “Keeping debt levels low, saving cash to pay bills, and maintaining solvent budgets reflect a culture of fiscal discipline. The first-place position of Florida in particular demonstrates that this is possible even with a relatively larger population and higher pension costs that arise from an aging population.
Oil and gas revenues play a role in short-term fiscal health. The top-performing states owe some of their success to unpredictable revenue sources. As oil prices have been declining, however, we see this detrimentally affecting their budgets. Alaska has moved out of the top five, and Wyoming has moved from third to fifth as a result. North Dakota’s revenues also declined and have the potential to impact their future rankings.
“Pensions and health care still pose long-term challenges to top-performing states,” they continued. “While these top five states are considered fiscally healthy relative to other states because they have significant amounts of cash on hand and relatively low short-term debt obligations, each state, especially Wyoming, faces substantial long-term challenges related to its pension and health-care benefits systems.”
Florida and Utah moved into the top five this year as Alaska and Nebraska dropped in the rankings.
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