The most fiscally sound states are heavily Republican, says a new study from the Mercatus Center at George Mason University. While Kentucky didn’t fare so well in their analysis, the reports focused on a state’s ability to pay it bills, manage long-term budget commitments, and whether they can adapt to sudden increase of spending in instances of emergency. Republicans dominate most of the states that ranked the best (via Investors Business Daily):
Cash solvency, for example, measures a state’s ability to pay its immediate bills. Budget solvency measures whether states will end the year with a surplus or deficit. Long-run solvency looks at a state’s ability to meet long-term spending commitments. Service-level solvency measures a state’s ability to respond to a demand for increased spending. And trust fund solvency measures unfunded pension liabilities and state debt.
States can do well on some measures and poorly on others. Alaska, for example, ranks at the top for cash, budget and long-run solvency, but near the bottom on the other two measures. Ohio ranks fifth in cash solvency, but 48th on trust fund solvency. This year’s report includes Puerto Rico, which scored dead last on every measure.
Concerning the bottom five states, the report stated that their unfunded liabilities remained an issue. Mercatus did note that there was some movement on their scale from last year—New York is out of the bottom five—but overall, the remaining states didn’t budge enough to get them out of the bottom tier:
Kentucky, Illinois, New Jersey, Massachusetts, and Connecticut rank in the bottom five states, largely owing to the low amounts of cash they have on hand and their large debt obligations.
Each state has massive debt obligations. Each of the bottom five states exhibits serious signs of fiscal distress. Though the states’ economies may be stronger than Puerto Rico’s, allowing them to better navigate fiscal crises, their liabilities still raise serious concerns.
Unfunded liabilities continue to be a problem. High deficits and debt obligations in the forms of unfunded pensions and healthcare benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.
The bottom five states have changed since last year. Kentucky’s position has declined, placing it in the bottom five this year. New York is no longer in the bottom five. New Jersey and Illinois improved slightly, but remain in the bottom five. Connecticut and Massachusetts also remain in the bottom five, in slightly worse positions than last year.