North Carolina’s Fiscal Situation Is Bright: Study

CHARLOTTE, NC — North Carolina has the ninth best fiscal situation in America, according to a new study by George Mason University. The Virginia-based researchers last week published the results of their fifth annual study, “Ranking the States by Fiscal Condition.” The study is based on fiscal year 2016 financial reports and evaluates each state’s fiscal solvency by looking at more than a dozen indicators that assess whether states can meet their short-term and long-term bills.

The authors looked at cash, budget, long-run, service-level and trust fund solvency.

Here’s how North Carolina ranked in each area:

• Cash solvency: 23rd
• Budget solvency: 2nd
• Long-run solvency: 8th
• Service-level solvency: 16th
• Trust fund solvency: 14th

North Carolina has between 1.67 and 2.72 times the cash it needs to cover short-term obligation, the authors wrote. Here’s what else they had to say:

“Revenues exceed expenses by 12 percent, with an improving net position of $530 per capita. In the long run, North Carolina has a net asset ratio of 0.08. Long-term liabilities are lower than the national average, at 14 percent of total assets, or $938 per capita. Total unfunded pension liabilities that are guaranteed to be paid are $131.56 billion, or 31 percent of state personal income. OPEB are $32.47 billion, or 8 percent of state personal income.”

The most fiscally solvent states were Nebraska, South Dakota, Tennessee, Florida and Oklahoma. At the other end of the spectrum, Illinois is the least fiscally solvent, followed by Connecticut, New Jersey, Massachusetts and Kentucky.

The authors highlighted several national trends. Among the most notable: State budgets have not fallen to the lows they reached during the recession, but they also haven’t quite recovered to where they were at before the recession.

Also, long-term liabilities have on average increased over time and long-term liabilities went up most significantly in fiscal year 2015 (largely due to new rules requiring states to report unfunded pension obligations on the balance sheet).

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Most states were in a stable condition, the authors noted, with the exception of the large unfunded pension liabilities, which make up a significant portion of most state government obligations. Some states also routinely had low levels of cash on hand, indicating they were particularly vulnerable. Should the economy suffer a recession, these states would be at most risk of experiencing a budget shortfall, the authors said.

Terms

If the terms look a bit intimidating at first, don’t fret. Here are some explainers:

• Cash solvency looks at whether a state has enough cash to cover its short term bills. This includes accounts payable, vouchers, warrants and short-term debt.
• Budget solvency looks at whether a state’s current revenue can cover its fiscal year spending. Essentially, can a state cover its fiscal year spending with revenues, or does it have a budget shortfall?
• Long-run solvency looks at whether a state can meet its long-term spending commitments and whether it has enough money to cushion it from possible economic shocks or long-term fiscal risks.
• Service-level solvency looks at how large a percentage of personal income are taxes, revenue, and spending. In other words, it looks at whether states have the flexibility to increase spending should residents ask for additional services.

And finally, the authors looked at trust-fund solvency, referring to how much debt a state has accrued. This in essence looks at how the size of a state’s unfunded pension and healthcare liabilities.

Click here to read the full report.

Patch national staffer Dan Hampton contributed to this report.

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