Illinois has the second worst fiscal health in U.S., analysis finds

Jul 12, 2017

With $14.7 billion in unpaid bills and an estimated $251 billion in unfunded pension liabilities, it shouldn’t come as a surprise that Illinois is one of the least fiscally healthy states in the nation.

But a new analysis released by the Mercatus Center at George Mason University helps put into perspective the Land of Lincoln’s immense fiscal challenges.

The authors of the analysis combed through each state’s comprehensive annual financial report (CAFR) to get a picture of their fiscal condition and then ranked them accordingly based on their ability to cover both short- and long-term spending, including public pension and healthcare obligations.

Out of the 50 states, Illinois ranked No. 49 and only fared better than New Jersey. It’s important to note, however, that this analysis is based on the FY 2015 CAFR and we just began FY 2018, so it neither takes into account the recent passage of this fiscal year’s budget nor the preceding two-year stalemate that helped to catalyze the state’s already deteriorating financial condition. You can expect future analyses to look much, much worse.

Following are the five measures of fiscal solvency used to calculate each state’s ranking, with Illinois’ rank in parenthesis:

1. Cash solvency (48th)

  • Whether a state has enough cash-on-hand to pay its short-term bills.

2. Budget solvency (46th)

  • Whether a state can cover its fiscal year spending with current revenues, and whether there was a budget shortfall during that fiscal year.

3. Long-run solvency (49th)

  • Whether a state can meet its long-term spending commitments, while also having enough money available to act as a buffer against potential economic shocks and other long-term fiscal risks.

4. Service-level solvency (20th)

  • Measures how high taxes, revenue and spending are when compared to state personal income, and whether states have enough “fiscal slack” to increase spending if their residents demand more services.

5. Trust fund solvency (46th)

  • Measures how much each state has in unfunded pension and healthcare liabilities.

Source: Mercatus Center at George Mason University

Joining Illinois and Jersey on the list of the five states in the worst fiscal condition were Maryland (46), Kentucky (47) and Massachusetts (48). These states all have low amounts of cash on hand and significant short- and long-term debt obligations, particularly unfunded pension liabilities.

The five states that were ranked as the nation’s most fiscally healthy were Florida, North Dakota, South Dakota, Utah and Wyoming, respectively. While each of these states still face long-term financial challenges resulting from unfunded pension and healthcare liabilities, they all had sufficient amounts of cash on hand to cover short-term spending. However, states that have benefited from oil and gas revenues, like North Dakota and Wyoming, have and will continue to be pinched by falling oil prices, and the authors of the analysis warn their rankings likely will drop in the coming years.

More from the analysis:

Several themes persist from the 2016 edition of “Ranking the States by Fiscal Condition” that analyzed data from the FY 2014 study. These include the following:

  1. Poor-performing states have growing pension liabilities, other post-employment benefits (OPEB), and additional long-term obligations.
  2. Top-performing states have higher levels of cash, more robustly funded pensions, and strong operating positions.
  3. Oil revenues have had a negative impact on states that are very reliant on this volatile revenue source, such as Alaska.
  4. Accounting standards affect what states reveal on their financial statements and what can be known about the states’ financial health as a result.

Source: Mercatus Center at George Mason University

You can find the full analysis here. 

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