State government in Massachusetts has exhibited “serious signs of fiscal distress” and in fiscal 2015 posted an overall condition that was better than only Illinois and New Jersey, according to a new study that compared states.
The fourth annual study ranked states based on short- and long-term debt, unfunded pension and health care benefits, revenues and expenditures, cash on hand and other assets. Researchers at George Mason University’s Mercatus Center used information from audited financial reports, and said the rankings this year were influenced by new accounting standards that require states to report their net pension liabilities.
The state’s with the strongest overall fiscal condition, in order of ranking, were Florida, North Dakota, South Dakota, Utah and Wyoming.
States with the lowest rankings, including Massachusetts, were flagged for “the low amounts of cash they have on hand and their large debt obligations.”
“Kentucky, Massachusetts, Illinois, and New Jersey have three commonalities: weak levels of cash solvency, large liabilities relative to assets, and unfunded pension and OPEB (other post-employment benefit) liabilities that are large relative to the income of state residents,” the study said. “On a cash-solvency basis and using the strictest measure of cash solvency, all four states have insufficient cash to cover short-term liabilities. When including less liquid forms of cash, Massachusetts and Illinois have the weakest measures of cash solvency”
Massachusetts has long issued short-term debt to meet its cash needs, paying off that debt before the end of each fiscal year. Credit rating agencies over the years have cited a high debt load as a negative factor in Massachusetts, contrasting that with the state’s high median income and stable economic base.
Total primary government debt in Massachusetts of $28.43 billion, or 6.9 percent of personal income, is “nearly twice the average in the states,” the study said. In other states, some debt absorbed at the state level in Massachusetts is incurred at the county government level.
The study pegged the unfunded public pension liability in Massachusetts at $31.13 billion, compared to a national average of $20.62 billion.
Researchers concluded that Massachusetts is among a few states with budgets featuring revenues that fall short of expenses during the fiscal year.
“Kentucky’s net position moved in a positive direction with the state reporting a per capita surplus of $122.13,” the study said. “Massachusetts, Illinois, and New Jersey each moved in a negative direction in net position, with per capita deficits of $319.43, $27.65, and $677.88, respectively.”