A new study from researchers at George Mason University has for the fifth year ranked states according to their financial condition. The Mercatus Center study, based on FY 2016 financial reports of the 50 states, ranked the states’ financial solvency using 13 indicators that assess the extent to which they can meet their obligations, based on five dimensions of solvency, to develop an overall ranking:
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 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 large a percentage of personal income are taxes, revenue, and spending? How much “fiscal slack” does a state have to increase spending if citizens demand more services?
Trust fund solvency. How much debt does a state have? How large are its unfunded pension and healthcare liabilities?
Floridians can find good news in this report, in that their state ranks No. 4 overall, behind only Tennessee in the South. It should be noted that states like Kentucky, Massachusetts, New Jersey, Connecticut and (especially) Illinois find themselves in poor positions despite a booming national economy and a bull stock market. Conditions seem likely not to be so favorable in the near future.
Even states like Florida face challenges ahead. Former heavyweight champion Mike Tyson once noted that “everyone has a plan until they get punched in the mouth.” Two of those jaw punches will be a continuing aging of the state’s population and the next national recession, which is not inevitable but is already overdue by historical standards.
If these challenges seem daunting for Floridians, just imagine how things must look in Illinois.