Study: R.I. ranks No. 39 for fiscal solvency; Mass. ranks No. 47

Rhode Island ranked No. 39 and Massachusetts ranked No. 47 in a new study by the Mercatus Center at George Mason University evaluating each state’s fiscal condition based on four separate measures of a state’s solvency. More

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Study: R.I. ranks No. 39 for fiscal solvency; Mass. ranks No. 47

COURTESY MERCATUS CENTER AT GEORGE MASON UNIVERSITY
A NEW STUDY by Mercatus Center researcher Sarah Arnett evaluated each state's fiscal condition based on four differently weighted measures of a state's solvency. Rhode Island's overall fiscal condition score placed it at No. 39 in a ranking of the 50 U.S. states, while Massachusetts ranked at No. 47.
Posted 1/15/14

ARLINGTON, Va. – Rhode Island ranked No. 39 and Massachusetts ranked No. 47 in a new study by the Mercatus Center at George Mason University evaluating each state’s fiscal condition.

The State Fiscal Condition Index created by Mercatus Center researcher Sarah Arnett for the purposes of the study comprised four measures of a state’s solvency:

  • Cash solvency: Access to sufficient cash on hand to meet short-term obligations
  • Budget solvency: Creation of adequate revenue to cover fiscal-year budget expenditures
  • Long-run solvency: Availability of incoming revenue to cover long-term obligations such as pension benefits and infrastructure maintenance
  • Service-level solvency: Access to sufficient resources to provide residents with an adequate level of services

“Fiscal condition describes a government’s ability to meet its financial and service obligations,” Arnett wrote in her report. “If a state is able to meet these obligations, it is in good fiscal condition; if not, it may experience fiscal stress.”

The breakdown of Rhode Island’s individual solvency scores was as follows:

  • Cash solvency: No. 39
  • Budget solvency: No. 19
  • Long-run solvency: No. 42
  • Service-level solvency: No. 28

Massachusetts performed poorly in Arnett’s study, landing in the bottom 10 for all four solvency factors:

  • Cash solvency: No. 44
  • Budget solvency: No. 40
  • Long-run solvency: No. 47
  • Service-level solvency: No. 43

Arnett weighted each solvency factor based on the time frame over which that factor affects state residents. For example, cash solvency is a short-term component of fiscal condition, with a time frame of 30 to 60 days, while budget solvency represents a longer time frame of one fiscal year.

“An important conclusion of this paper is that while rankings inherently have top performers and bottom performers, there is a substantial different in state fiscal conditions,” Arnett wrote. “Although the ranking is a snapshot in time, the states at the bottom are there due to years of poor financial management decisions, bad economic conditions or a combination of the two.”

New Hampshire was the highest-ranking New England state, at No. 22 for fiscal condition, with Main at No. 36, Vermont at No. 38 and Connecticut at No. 49. Alaska led the fiscal condition list, while New Jersey came in at No. 50 in the ranking.

To view the complete study, visit www.mercatus.org.

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