There’s not a state in this country that doesn’t face fiscal challenges at one point or another. Some states, however, are in much better shape than others.
Last week, the Mercatus Center at George Mason University published its report, “Ranking the States by Fiscal Condition,” which is now in its fourth year. In the study, Eileen Norcross and Olivia Gonzalez calculate indicators of fiscal health for all 50 states through fiscal year 2015. The rankings are based on cash solvency, budget solvency, long-run solvency, service-level solvency and trust fund solvency.
Nevada checked in at a very respectable 14th, landing among 13 states in the “Above Average” category, from Nos. 6 to 18. Florida, North Dakota, South Dakota, Utah and Wyoming comprised the top five.
The Silver State’s No. 2 position nationally in service-level solvency — which measures taxes, revenues and spending against state personal income — bolstered its ranking. The metric is intended to determine whether states have enough “fiscal slack” and whether spending is high or low relative to the tax base.
Nevada also rated 17th in budget solvency, which measures whether a state can cover its fiscal-year spending using current revenues. The state came in 19th in cash solvency, which measures whether a state has enough money to cover its short-term bills. Nevada rated a middling 25th for long-run solvency.
But then come the alarm bells. The Silver State is a dismal 45th in trust fund solvency, which measures debt — including unfunded pension liabilities and other post-employment obligations — when compared with state personal income. As we’ve noted many times, Nevada’s Public Employees Retirement System has a huge unfunded liability, between $11 billion and $52 billion, depending on accounting methods. As far apart as those two numbers are, neither bodes well for the state’s future fiscal condition.
In the category of trust fund solvency, Nevada rates above only Illinois, Mississippi, Ohio, New Mexico and Alaska. If the Silver State doesn’t get serious about pension reform, its fiscal picture could eventually become a mirror image of California, which checks in at 43rd in the overall rankings.
One other finding is worth noting. As John Merline pointed out in Investor’s Business Daily, the 10 most fiscally solvent states are all low-tax, Republican strongholds. The 10 least-solvent states are almost all high-tax and heavily Democratic. In fact, Mr. Merline writes that of the 25 most-solvent states, all but four are solidly Republican, and of the bottom 25, all but five are solidly Democratic.
Nevada currently sits in fairly good position. But members of the 2019 Legislature, along with our next governor, would do well to stop ignoring the state’s growing long-term pension responsibilities.