Study: New Jersey and Connecticut are the most financially distressed states
New Jersey has the most financial red flags, followed by Connecticut, California, Hawaii, Illinois, Massachusetts, North Dakota and Pennsylvania. Twenty-three states have zero red flags.
by Geoffrey Lawrence and Carter Langofer, Reason Foundation (excerpts)
A new Reason Foundation analysis of every state in eight key, standardized financial metrics to assess long-term solvency and short-term liquidity finds New Jersey is the most fiscally distressed state, registering six out of eight possible fiscal red flags.
Connecticut is in the second-worst shape, with four red flags. California, Hawaii, Illinois, Massachusetts, North Dakota and Pennsylvania each have three red flags, according to the Reason Foundation report. Vermont, Washington, New York, and Delaware have two red flags.
State governments collectively carried $2.7 trillion in total liabilities at the close of their 2023 fiscal years, according to Reason Foundation’s extensive database compiled from audited annual comprehensive financial reports (ACFRs) across all 50 states. This substantial figure constitutes almost half of the nationwide $6.1 trillion in combined state and local government debt.
On a per-resident basis, state-level liabilities alone average roughly $8,000 per U.S. resident, though the actual burden varies widely depending on each state’s population, economic base, policy history, and especially the scale of unfunded retirement and health benefit obligations for state employees.
This report delivers an objective analysis of financial health across America’s largest state and local governments. Using Reason Foundation’s unique database, compiled from the audited annual comprehensive financial reports of more than 20,000 local government entities, the analysis applies eight standardized financial metrics to assess both long-term solvency and short-term liquidity. Entities that exceed the objective standard on any metric are awarded a “red flag,” indicating a concerning trend.
A single red flag does not necessarily signal an immediate fiscal crisis, but each one points to structural weaknesses that deserve urgent attention.
Multiple red flags may indicate an entity is in a precarious financial position in both the short and long term…..
California, Hawaii, Illinois, Massachusetts, North Dakota and Pennsylvania each have three red flags, according to the Reason Foundation analysis.
Hawaii faces long-term challenges and carries $27.5 billion in total liabilities, or $18,909 per capita. Although assets exceed liabilities overall, restrictions on the use of cash leave Hawaii’s unrestricted net position negative at -$7.4 billion. Its cash assets amount to only 7.5% of total assets, although it holds sufficient cash to service current liabilities. Hawaii also boasted a healthy annual operating surplus of $2,566 per capita in FY23….
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PDF: State and local government finances in America
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