That is the question that a new study by the Mercatus Center attempts to answer with their “Ranking the States by Fiscal Condition 2017 Edition.” They found that the most financially solvent states (from best to worst) are:
- 1. Florida
- 2. North Dakota
- 3. South Dakota
- 4. Utah
- 5. Wyoming
Yet all is not perfect in these top 5 states. The study asserts:
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 healthcare benefits systems.
The five least financially solvent states (from worst to best) are:
- 50. New Jersey
- 49. Illinois
- 48. Massachusetts
- 47. Kentucky
- 46. Maryland
The problems related to unfunded liabilities is even more extreme for these bottom tier states, plus these states often do not have sufficient cash to cover all short-term liabilities.
Methodology
The five components that are used to evaluate the states were:
- Cash solvency. Does a state have enough cash on hand to cover its short-term bills?
- Budget solvency. Can a state cover its fiscal year spending with current revenues, or does it have a budget shortfall?
- Long-run solvency. Can a state meet its long-term spending commitments? Will there be enough money to cushion it from economic shocks or other long-term fiscal risks?
- Service-level solvency. How much “fiscal slack” does a state have to increase spending if citizens demand more services?
- Trust fund solvency. How large are each state’s unfunded pension and healthcare liabilities?
