Fiscal policy

In the Fiscal Health Beauty Pageant, Everyone Loses

Is your state insolvent?

|

Pipeline
Raymona Pooler / Dreamstime

Many states are broke, even though their constituents don't know it. The two main drivers of states' fiscal problems are the bloated promises made by lawmakers to their public employees about health care and pension benefits and an unwillingness to acknowledge the existence of a problem. Whether the dodging of long-term obligations is done knowingly or inadvertently hardly matters. The results are still the same. Faulty accounting always comes back to hurt the people in the cities and states that have used it—for example, Puerto Rico, Detroit, and Chicago.

The 2016 edition of "Ranking the States by Fiscal Condition," released last week by my colleagues Eileen Norcross and Olivia Gonzalez, reveals that more fiscal disasters loom in the United States. The study ranks each state's (and Puerto Rico's) financial health using data from standardized and audited comprehensive annual financial reports—which show short- and long-term debt, along with key fiscal obligations, including unfunded pensions and health care benefits.

As one would expect, the media and state officials are very interested in the ranking itself. You won't be surprised that the worst fiscal conditions are in Puerto Rico, Connecticut, Massachusetts, New Jersey, and Illinois. If you were wondering, New York is 42nd, and California is 44th. These states face large debt obligations and have very little cash on hand to pay short-term bills. To be sure, the economies of these low-ranked states are better than Puerto Rico's and are unlikely to end up in the same tragic place. However, bad fiscal habits could spell disaster for these states during a recession or other emergencies.

The states with the best fiscal conditions this year are Alaska, Nebraska, Wyoming, North Dakota, and South Dakota. These states are relatively healthier because they have some cash on hand and relatively low short-term obligations. However, the ranking isn't the most important part of the study. In fact, Norcross and Gonzalez take great care to explain that these numbers can be misleading. For instance, the states at the top might read their position as a sign that they are in great fiscal health, but indeed, the great contribution of this work is in highlighting the structural weaknesses shared by most states.

That's right; even this year's winners of the fiscal health beauty pageant are themselves likelier to be on shaky fiscal grounds because of their long-term unfunded pension obligations and non-pension benefits, which may be hidden because of poor or deceptive accounting practices.

Take Alaska. Once again, the state takes first place, thanks in large part to its large reserve of cash, which is the product of its oil revenue. However, this overreliance on oil could become a problem in an age of decreased oil prices. Interestingly, almost all of the top five states are overly reliant on unpredictable revenue sources.

In addition, Alaska ranks second to last in service-level solvency. The numerous restrictions put on the use of oil revenue—the state is hoarding cash but can't use it as it pleases or needs—and other poor management of the state's assets, including an already high tax burden, means Alaska has very little fiscal slack in case of an emergency.

The state also ranks second to last in trust fund solvency, meaning its retirement system is underfunded. Its pension funds (on a market value basis) are only 29 percent funded, meaning that the rest is not paid for. Its total pension debt is 70 percent of personal income in Alaska. That's hardly financially sound, even though the threat may be less visible for now because the bill won't be due until later and the state claims that 58 percent of its pension liability is funded.

The main takeaway of the report is that when it comes to a state's fiscal health, appearances are deceptive. Whether your state is at the top, at the bottom or in the middle of this fiscal ranking, chances are that its fiscal health is worse than state officials claim. The good news is that it is never too late for a state to make improvements to limit fiscal shock down the road.

COPYRIGHT 2016 CREATORS.COM

NEXT: The Fourth Amendment Is Supposed to Work for the People, Not the Government

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

    1. The bluest states seem to be in the worst condition.
      Let me try to find my shocked face.

      1. Let me try to find my shocked face.

        Mine’s in the shop. It broke from over use.

        1. Well you should have bought American. My shocked face was given to me by my Mother and it will likely be passed down to my children – such is precision and craftsmanship.

          1. What about my outrage gland? My outrage gland wore out years ago, and I just dunnow any moah about whut I ken do about tit… And even THAT no longer outrages me!!!

      2. It will be interesting to check back on Wisconsin a decade from now, and see how Walker’s castration of the government employee unions pans out.

        1. Massive hyperbole doesn’t really help your case.

      3. I was just thinking the color gradient should be going to other way on there OHSIT!-barometer.

      4. The map is practically the usual electoral map.

  1. OH ya well lets rank the states by physical condition… Texas number one boo ya

  2. Don’t be silly! California can’t be at rank 44! If they were, how could they afford high speed rail and paying retirees of the public system 105% of their final salary???

    1. I understand these payments are made in IOUs.

  3. That’s right; even this year’s winners of the fiscal health beauty pageant are themselves likelier to be on shaky fiscal grounds because of their long-term unfunded pension obligations and non-pension benefits…

    Yes, but the key is for them to be long-term enough to be out of office when your chickens come home to roost.

  4. New Hampshire — an island of mediocrity in a sea of shit.

    1. aaahhhhh to be on the island looking out over those drowning in a sea of debt. Should I jump in and rescue them? No. With some imagination they can turn that polluted water into dry land.

    2. Ssadly all the people who jump those other sinking ships are heading to New Hampshire and leading it down the same path. How do you explain Hassan? All the Massh^%es who want liberalism but hate the taxes crossed the border to live a better life then bitch they don’t have good old government and start demanding the same crap.

  5. Nonsense. Everyone, or at least my progressive acquaintances, knows that the deep blue states are all lands of fiscal milk and honey. Also, Kansas has a much higher ranking than the right-thinking people know it deserves.

  6. Another stock market plunge and all those pension funds go bye bye. They were given a reprieve over the last few years but the fundamentals have not changed and they avoided fixing the problems.

    1. Well if memory serves California is betting on a 7% return every year. Yeah that is gonna happen.

  7. FL: 44th in Tax burden, 6th in fiscal health.

    1. The interesting bit about this is that almost all the states at the top have a very low tax burden. All the states at the bottom…. have very high ones.

      Which makes you think that the Progressive idea of “we just need more taxes to solve our fiscal problems” is total bullshit.

      1. Of course its bullshit. Sense when does proof in numbers matter to scumbag crook politicians?

        1. It’s not just the scumbag crook politicians.

          It’s the gullible dupes that inhabit those states who think that getting the government to mug someone else will solve their problems.

          1. Not only do they beg the government to mug them. These same parasitic strays think that the sole source of their woes lye in some rich guy’s evil quest for profit.

  8. Want to know how stupid the blue states are? There was a recent court case in NJ where it was determined that Christie recently won a court case which essentially said that the governor was not constitutionally required to make payments to the ridiculously underfunded state pension fund if there was no money to do so. so now, the Democrats have decided that they will pass a constitutional amendment requiring payments to be made to the pension fund even if there’s no money!

    What could possibly go wrong?

    1. That is actually the case in IL; it’s baked into the constitution, so there’s something like $26B in required payments out of a $40B state budget.

    2. That’s how my business operates.

      We pay all of our debt by getting more loans. We promise our employees total cradle to grave benefits at the beginning of their careers, we issue bonds with laughable cost-benefit ratios, we pay for our fleet vehicles by grants from the federal government that offer emissions that freeze polar bears to death, We have no idea what the profit motive is. We hire more and more people to create work for themselves and to give the existing employees people to manage.
      My employees cannot speak proper English, have no idea who the following people are: Marx, Keynes, Bastiat, Freidman, Hazlitt, Heyak.
      My employees like to spend all of the budget on job fairs, field trips, and studies to improve graduation rates. My employees have parties all the time, catered, to celebrate the one successful program in a sea of total failures and ask for more money each time.
      We went out of business 50 years ago.

  9. Maine voters have never met a bond that they didn’t like. I plan to vote against them all as a matter of principle, and I know they will all pass.

  10. Does it bother anyone that public servants make more on money on average than private sector employees doing the same job. Get better benefits and get better pensions because they aren’t forced into social security. And the private sector has to pay for all of this with absolutely no say into any of it. Hey people we are getting hosed.

  11. The big problem is even if you are in a “healthy” state you will be picking up the bills for the New Jersey’s and California’s bankruptcy. Do you honestly think uncle sugar daddy is going to let “some poor retired teacher” eat cat food. No way so we will pick up the tabs for those foolish promises. Remember GM the UAW has done nothing to reform cause they know if the Big 3 go under again we will bail them out.

    1. You’d almost be crazy to live in a “healthy” state.

      1. Exactly. Give up, get on board, and stop reading books. Knowledge is only torture in America.

      2. Yup and we can give up that even if the Grand Coward Party keeps Congress they will stand up to any bailouts. The other side will trot out some poor retired teacher and claim she will be out living on the streets the media will hammer and they will cave.

  12. I imagine something like decreasing pension benefits by 5% and increasing pension contributions by 5% would solve most of the problem. (With police pensions that probably wouldn’t be the case since they usually continue to get their FULL salary after they retire, which is the stupidest thing in the world.) There’d probably be legal barriers even if somebody got the balls to actually try and do that.

    1. No more retiring after 20 years would be helpful, too.

      1. Or basing your pension on your final year’s salary, padded by accrued vacation and overtime pay.

    2. Rarely do police and fire get their full salary. Most sensible plans like the military is 50% for twenty and usually 2-2.5% per year up to usually a max of 75%. Usually that is based on a high three system(average of highest three years). And usually with police they can’t collect a pension till 45. Sorry to say since there is a high degree of physicality involved with those jobs I really don’t want to many 45-50 year olds being police or firemen with the exception of senior leadership. It is a special situation. New Hampshire has a sane system.

      However what you have in insane states like California is a stupid system. Their promised benefits are ridiculous(think it is something like 95%) and many of their rules such as someone below saying final year with accrued vacation and overtime.

    3. Rarely do police and fire get their full salary. Most sensible plans like the military is 50% for twenty and usually 2-2.5% per year up to usually a max of 75%. Usually that is based on a high three system(average of highest three years). And usually with police they can’t collect a pension till 45. Sorry to say since there is a high degree of physicality involved with those jobs I really don’t want to many 45-50 year olds being police or firemen with the exception of senior leadership. It is a special situation. New Hampshire has a sane system.

      However what you have in insane states like California is a stupid system. Their promised benefits are ridiculous(think it is something like 95%) and many of their rules such as someone below saying final year with accrued vacation and overtime.

  13. The good news is that it is never too late for a state to make improvements to limit fiscal shock down the road.

    But politically impossible. I can already hear the screeching about “AUSTERITY, OMGZ!1!1!!!!” I can only imagine the shitstorm that would be unleashed on any state that tries to make improvements. It would make the Wisconsin protests over Walker’s reforms look calm and measured in comparison.

    Nothing will be done to avert catastrophe. We’re fucked. All any of us can do is stockpile guns, ammo, and non perishable food, and learn how to grow our own food. Or hope that we’re dead before the shit really hits the fan.

  14. Related:
    “As hunger mounts, people in socialist Venezuela turn to trash for food”
    http://www.gopusa.com/as-hunge…..-for-food/

    1. This is how well Venezuela is doing – people are so wealthy that other people can live just fine off the trash they throw away! In poor countries you don’t see people throwing away enough trash to be able to live off of, do you?

  15. My neighbor’s half-sister got paid $18590 last month. she been working on the internet and moved in a $397900 home. All she did was get blessed and apply the instructions uncovered on this website..

    browse this site…. Go Here._______________ http://www.earnmore9.com

  16. All the states are broke. They have to steal new money every year to pay their bills.

  17. It would have been nice for her to include in this article a link to the actual report. If anyone’s interested, here it is: http://mercatus.org/statefiscalrankings

  18. Does this study truly take into account the outright cooking of the books in California (and probably other states as well)?

    For instance, here’s a clever trick Calif. is doing: they pushed the cost of prisoners from the state level down to the county level to get them off the state books. BUT, it’s the same taxpayers and the same prisoners–whether Taxpayer A sends $100 to the county or the state to pay for Prisoner A doesn’t change the fact that Taxpayer A is tapped out.

    The next downturn that comes along, Taxpayer A folds and/or leaves the state, and both county and state are left holding the bag for Prisoner A’s costs. Maybe if the left and right didn’t criminalized every damned thing and tax and spend like there’s no tomorrow…

    1. But let me guess they concentrate those prisoners in red counties to save the blue ones?

  19. before I saw the bank draft which had said $9426 , I didnt believe that…my… brother woz like actualy earning money part-time at there labtop. . there uncles cousin has done this 4 less than fifteen months and by now repaid the dept on there place and got a great new Mini Cooper . read the full info here …

    Clik This Link inYour Browser??

    ? ? ? ? http://www.SelfCash10.com

  20. Start making more money weekly. This is a valuable part time work for everyone. The best part work from comfort of your house and get paid from $100-$2k each week.Start today and have your first cash at the end of this week. For more details Check this link??

    Clik This Link inYour Browser?

    ???? http://www.selfCash10.com

  21. 3″My friend just told me about this easiest method of freelancing. I’ve just tried it and now II am getting paid 15000usd monthly without spending too much time. you can also do this.

    ……….. http://www.Maxcenter20.com

  22. 2″My friend just told me about this easiest method of freelancing. I’ve just tried it and now II am getting paid 15000usd monthly without spending too much time.You can also do this.

    >>>>> https://www.Cashpay60.tk

  23. I am making $89/hour working from home. I never thought that it was legitimate but my best friend is earning $10 thousand a month by working online, that was really surprising for me, she recommended me to try it. just try it out on the following website.

    ??? http://www.selfcash10.com

  24. 3″I quit my 9 to 5 job and now I am getting paid 98usd hourly. How? I work-over internet! My old work was making me miserable, so I was forced to try-something NEW. After two years, I can say my life is changed-completely for the better! Check it out what i do.

    >>>>>>>>> http://www.Today70.com

  25. I’ve made $76,000 so far this year working online and I’m a full time student.I’m using an online business opportunity I heard about and I’ve made such great money.It’s really user friendly and I’m just so happy that I found out about it.

    Open This LinkFor More InFormation..

    ??????? http://www.selfcash10.com

  26. 4″I quit my 9 to 5 job and now I am getting paid 100usd hourly. How? I work-over internet! My old work was making me miserable, so I was forced to try-something NEW. After two years, I can say my life is changed-completely for the better!Learn More From This Site…

    ======> http://www.Today70.com

  27. I’ve made $76,000 so far this year working online and I’m a full time student.I’m using an online business opportunity I heard about and I’ve made such great money.It’s really user friendly and I’m just so happy that I found out about it.

    Open This LinkFor More InFormation..

    ??????? http://www.Reportmax20.com

  28. my friend’s mom makes $73 hourly on the laptop . She has been out of a job for 6 months but last month her pay was $18731 just working on the laptop for a few hours…..

    Open This LinkFor More InFormation..

    ???????

    http://www.Reportmax20.com

  29. my friend’s mom makes $73 hourly on the laptop . She has been out of a job for 6 months but last month her pay was $18731 just working on the laptop for a few hours…..

    Open This LinkFor More InFormation..

    ???????

    http://www.Reportmax20.com

  30. my friend’s mom makes $73 hourly on the laptop . She has been out of a job for 6 months but last month her pay was $18731 just working on the laptop for a few hours…..

    Open This LinkFor More InFormation..

    ???????

    http://www.Reportmax20.com

  31. before I saw the bank draft which had said $9426 , I didnt believe that…my… brother woz like actualy earning money part-time at there labtop. . there uncles cousin has done this 4 less than fifteen months and by now repaid the dept on there place and got a great new Mini Cooper . read the full info here …

    Clik This Link inYour Browser??

    ? ? ? ? http://www.selfcash10.com

Please to post comments

Comments are closed.