The Mercatus Center at George Mason University has published a new study ranking the fiscal conditions of the 50 states. While on a few measures Virginia is in the top 20 — but not in the top ten — its overall fiscal condition is smack-dab in the middle, ranking 25th in the country.
By comparison, the top-ranked state is Alaska and the bottom-ranked state — worse even than California and Illinois — is embattled Governor Chris Christie’s New Jersey.
In her conclusion, author Sarah Arnett explains:
The purpose of this paper is twofold: first, to further the use of cash, budget, long-run, and service-level solvency indices to measure fiscal condition, and second, to rank states on the relative strengths and weaknesses of their fiscal condition. In demonstrating the usefulness of the cash, budget, long-run, and service-level solvency indices, this paper also highlights that there is more than one way to measure state fiscal condition. The method advanced here has the advantage of relying on audited, publicly available data in addition to having an easily reproduced and transparent methodology that is open to all researchers. An important conclusion of this paper is that while rankings inherently have top performers and bottom performers, there is a substantial difference in state fiscal conditions. Some states, the top performers, are able to match revenues and expenses to achieve balanced budgets. These states also have enough liquid assets to pay their short-term bills on time as well as strategies to manage long-term liabilities. Other states, the bottom performers, have serious shortcomings in their management of at least one dimension of fiscal condition. For example, these states are unable to match revenues and spending levels, or they have used unsustainable strategies to manage long-term liabilities. Most states fall somewhere in the middle of the rankings, with neither overt weaknesses nor overt strengths.
Besides providing the basis for state rankings, the indices discussed in this paper could also be used to test the effect of fiscal institutions, such as balanced budget requirements and tax and expenditure limitations, on different dimensions of state fiscal condition. Analyzing state responses, such as the use of rainy day funds, to weak cash, budget, long-run, or service-level fiscal conditions, would provide an interesting perspective on how states respond to different aspects of weak fiscal condition. The ability to calculate these indices over several years and for all 50 states underscores the potential for their use in longitudinal analysis. Another area of research is to further test index reliability, particularly of the long-run and service-level solvency indices.
In the five categories she examines, Arnett ranks Virginia 29th in cash solvency, 18th in budget solvency, 28th in long-run solvency, 13th in service-level solvency, and, as mentioned above, 25th in fiscal condition.
While Virginia can rightly tout its description as the “best place to do business” and other measures, these fiscal health rankings suggest that the state’s leaders had better scrutinize current policies to determine whether programs (including services to residents as well as pension obligations to government retirees) are sustainable in the long-run.
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