Is Your State Fiscally Sound?

Data fascinate me. My recreational reading has run the gamut from Guinness World Records to The CIA World Factbook to The Almanac of American Politics … and everything in between. Of course not all data sources are of high quality, and one has to consider the source in evaluating their usefulness. Recently I came across an intriguing analysis that ranks the states according to their fiscal condition. This research was performed at the Mercatus Center of George Mason University, an institution that leans conservative but produces high quality research that seems relatively unbiased.

My interest was piqued by the opportunity to see if there is any correlation between a state’s rank and the dominant political party managing its finances. And, since at least ten current or former Governors are candidates for President in 2016, it is also interesting to see how their states have prospered, or not as the case may be.

First, let us look at the results. The Mercatus Center researcher, Senior Research Fellow Eileen Norcross, uses the states’ own audited financial reports. Using such statistics as revenues, expenditures, cash, assets, liabilities and debt, Ms. Norcross ranks the states according to how easily they will be able to cover short-term and long-term obligations, including pensions and health care. Five categories are examined:

  1. Cash solvency – Does a state have enough cash on hand to cover short-term bills?
  2. Budget solvency – Can a state cover its fiscal year spending with current revenues?
  3. Long-run solvency – Can a state meet its long-term spending commitments with enough reserve to cushion it from economic shocks?
  4. Service-level solvency – How much slack does a state have to meet increased service demands?
  5. Trust fund solvency – How much debt and unfunded liabilities does a state have?

The summary result is depicted below, in which the ranking is based upon a weighted combination of these categories.

FR-OVERALL-Map-1Looking at the top-ranked ten states, all but Montana are fully controlled by Republicans. Montana has a Democratic Governor and a Republican Legislature (both Houses). For the bottom-ranked ten states, three are fully controlled by Democrats and the remainder are split in various ways. This is not probative, nor does it imply causation, because the fiscal environment of each state is unique. However it does seem to indicate a plausible connection between fiscal prudence and one of the two parties. I can’t say that it is a surprise to me, but keep in mind that quality of life is a balancing factor.

When considering the influence of current and recent Governors on their state’s fiscal status, it is important to understand their precise role. The state legislatures set budgets and allocate funds, while the Governor is responsible for proposing and implementing policies and for spending funds efficiently. Both arms of government bear responsibility for fiscal performance, but on balance the Governor should ultimately get the most credit or blame. For one thing, Governors have veto power over ill-conceived legislative ventures, and in some instances they also have a line-item veto. However, there is one final caution. A state’s current condition is a function of policies that may have existed over many years, covering several different Governor’s terms of office. But conversely, government control rarely switches between the parties so there is usually a continuity of political philosophy.

Of the ten Presidential candidates who are current or recent Governors, most have very little to be proud of, at least in terms of their fiscal management prowess. On the Republican side, John Kasich certainly is an exception. He is the current Governor of Ohio, which ranks seventh in fiscal solvency. Also Jeb Bush was Governor of Florida, which ranks even better at fifth, but his term of office ended over eight years ago so his contribution to the state’s fiscal health is uncertain. One Republican candidate who frequently boasts of his state’s economic prosperity is Rick Perry of Texas. His state ranks nineteenth and is classified as having moderate solvency. Although he is also a past Governor, the state government is currently managed by fellow Republicans with similar policies. This performance isn’t bad but I think Perry might be wise to hang his hat on some other accomplishments.

On the Democratic side, Martin O’Malley was the previous Governor of Maryland, which ranks 37th, and Lincoln Chafee was the previous Governor of Rhode Island, which ranks 38th. Both would be well-advised to emphasize some other aspect of their experience.

If you are curious about the exact scores, they are listed below. If you want the full details, see this PDF document.Fiscal-Condition-table