States are mounting an uneven fiscal recovery from the Great
Recession, with energy-rich states leading and Northeastern states with big
pension obligations lagging, a new study shows. Alaska, the Dakotas, Nebraska
and Florida are on the most solid financial footing, according to rankings of
the 50 states released Tuesday by the Mercatus Center at George
Mason University. New York, Connecticut, Massachusetts, New Jersey and Illinois
are at the bottom.
The Mercatus Center, a public policy research group, ranked
the 50 states based on how well each state government planned spending in
fiscal 2013 — the most recent year for which data was available — as well as
their future financial prospects from annual budgeting to cash to pay bills, to
funding for pensions and long-term plans.
Of the top five states, the Dakotas, Nebraska and Alaska
raked in revenue from national resources like oil. And while most state
governments now have enough cash to pay short-term bills, according to
Norcross, the study Ranking the States by Fiscal Condition suggests that
the future is less certain. One common burden is the commitment to pay out huge
sums in pensions.
The report shows how a single year's budget might not
reflect the true fiscal health of a state. Some states may struggle financially
because they used pensions and entitlements to pay general expenses. In
Illinois, ranked No. 50, the government used funds set aside for future
pensions to pay more urgent bills. When the pensions came due, Illinois tried
to cut them. A judge ruled this past May that Illinois' pension cuts were
unconstitutional. But that left the state with no plan to deal with a growing
list of debts.
Over two decades, New Jersey, ranked 49th, did not make consistent
annual payments to the pension system, funding it with debt instead. It
subsequently owed $5 billion in pensions. Many states already have made hard
choices to stay solvent, according to another study by the Rockefeller
Institute, a research group at the State University of New York.
That study, The Blinken Report, found that as
states recovered from the Great Recession, they cut education employment, hours
for corrections officers, and funding for higher education, among other things.
Boyd said only Medicaid and other entitlements showed growth
during the recession in many states. But while the economy hit every state
hard, Boyd says, some states bounced back faster than others. For instance, the
energy-rich states built rainy day funds in fiscal years 2013, 2014 and 2015.
Alaska, though, could start feeling the squeeze now that oil prices are low,
according to Boyd's research.
In states like Nebraska and Florida, which get funding from
a variety of different taxes revenues have increased steadily. Nebraska and
Florida try to keep stable ratios of debt and spending to personal income,
according to Norcross' research.
Despite the uncertain future of pension obligations in many
states, the National Association of State Budget Officers (NASBO) said that states'
budgets are manageable and in line with the rest of the economy.
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