Mercatus State Ranks – 2017

The Mercatus Center just released their 2017 ranking of states by fiscal condition:

Based on the FY 2015 comprehensive annual financial reports of the 50 states, this study ranks states’ fiscal solvency using 13 metrics that assess the extent to which the states can pay short-term bills and meet longer-term obligations. State finances are analyzed according to five categories of solvency: cash, budget, long-run, service-level, and trust fund. These five categories are combined to produce an overall ranking of state fiscal solvency.

New Jersey solidified its hold as the worst of the worst with a per capita debt of $16,821, compared with a nationwide average of $4,272 and $12,118 for fiscal basket-case Illinois, but with an explanation:

The Management Discussion and Analysis of these states’ CAFRs makes it clear that the recognition of net pension liabilities is a significant factor in driving net position downward. The net pension liabilities of these states are based on GASB 68’s recommendation that states measure their liabilities based on a blended discount rate. In practice, and contrary to expectations, this has meant that most states continue to value their pensions using high discount rates, rather than the lower “blended rate.” New Jersey is an exception. In FY 2015, the state applied a more  conservative set of assumptions to value the unfunded liability, and, as a result, reports a far larger unfunded liability. Other states, such as Illinois, continue to use more generous assumptions. The end result is that New Jersey, by reporting a more accurate unfunded liability, performs more negatively in long-run solvency.

The Mercatus people were good enough to provide excel spreadsheets that included unfunded pension (at ‘risk-free’ interest rates) and OPEB liabilities along with regular debt which we will examine in future blogs but for now here are the rankings: