July 19, 2017 Print

Organizational culture weighs heavily in the fiscal health of states, according to The Mercatus Center at George Mason University’s recently published annual study, “Ranking the States by Fiscal Condition,” now in its fourth year.

The biggest determinant of fiscal health appears to be the culture of commitment to fiscal responsibility from state to state. Two states – Florida and Illinois – function as foils for each other. Illinois’ unpaid bills have been stacking up while state policymakers failed to pass even a stopgap for years.

“Ranked 49th in our study, Illinois is facing a $14 billion backlog in unpaid bills and just raised its income taxes to try and pay for them,” said Olivia Gonzalez, co-author of the study. “New tax dollars can provide the state with a temporary revenue infusion but will do nothing to address the underlying cause of Illinois' crisis — and may make it worse. When the tax burden grows on residents and businesses, those who can most afford to leave do just that. A downward spiral ensues — with shrinking revenues and increasing pressure on government services.”

Read the research summary.

On the other end of the spectrum is Florida, “…ranked number 1 in the study, where the population has been growing at about 1.7 percent annually since 2013,” continued Gonzalez. “The state consistently balances its budget and keeps its taxes and expenditures relatively low. Being fiscally responsible isn’t just important for the state’s bottom line — it is equally important for residents as it ensures a better place to live. Lower tax burdens allow citizens to have more money to spend as they choose and well-kept state coffers help prevent painful cuts to services and pension checks that residents rely on.”

Trends along culture continue for the best and worst performing states in the study. The bottom five states — Maryland, Kentucky, Massachusetts, Illinois, and New Jersey — all have large debt obligations and little cash on hand. Conversely, low debt and higher amounts of cash help explain the top five states’ (Florida, North Dakota, South Dakota, Utah, and Wyoming) positions.

“The top five states — Florida, North Dakota, South Dakota, Utah, and Wyoming — also exhibit a dedication to a culture of fiscal prudence, adhering to state budget deadlines and keeping spending in check much better than lower ranked states,” explained Gonzalez. “Meanwhile, the bottom five states — Maryland, Kentucky, Massachusetts, Illinois, and New Jersey — remain stuck in place due to persistently large and growing liabilities.”

View the overall fiscal solvency map.

As the study has matured over the past few years, trend lines have developed that highlight states that move up and down from year to year based on changes in fiscal policies, new accounting standards, and other major drivers of fiscal performance.

“As the fourth edition, this study develops trend lines that point to which states are persistently underperforming and highlights their structural weaknesses. States that fail to address long-term drivers of debt and are not prepared for recessions will continue to rank poorly.”

Learn more about: “Ranking the States by Fiscal Condition: 2017 Edition"

The greatest challenge to responsible fiscal policies transcends state borders. “The biggest issue area that states across the board need to address, even top performers, is growing unfunded pension liabilities,” continued Gonzalez. “Reforming pension systems to slow down and pay down liabilities is a challenging task, but this report helps policymakers diagnose exactly where their state is on the financial spectrum so that they can take the appropriate steps to become more fiscally healthy.”

Read the full Mercatus study: “Ranking the States by Fiscal Condition: 2017 Edition