Solvency

[Zam-Zam]

Where does your state rank?

Top Five States

Florida, North Dakota, South Dakota, Utah, and Wyoming rank in the top five states. Top-performing states tend to have higher levels of cash, low unfunded pensions, and strong operating positions.

• Low debt and a strong cash position help maintain fiscal discipline. Keeping debt levels low, saving cash to pay bills, and maintaining solvent budgets reflect a culture of fiscal discipline. The first-place position of Florida in particular demonstrates that this is possible even with a relatively larger population and higher pension costs that arise from an aging population.
• Oil and gas revenues play a role in short-term fiscal health. The top-performing states owe some of their success to unpredictable revenue sources. As oil prices have been declining, however, we see this detrimentally affecting their budgets. Alaska has moved out of the top five, and Wyoming has moved from third to fifth as a result. North Dakota’s revenues also declined and have the potential to impact their future rankings.
• Pensions and health care still pose long-term challenges to top-performing states. While these top five states are considered fiscally healthy relative to other states because they have significant amounts of cash on hand and relatively low short-term debt obligations, each state, especially Wyoming, faces substantial long-term challenges related to its pension and healthcare benefits systems.
• The top five states have changed since last year. Alaska and Nebraska dropped out of the top five, allowing Florida and Utah to join. North Dakota and South Dakota improved from fourth and fifth to second and third, respectively, pushing Wyoming down two spots to fifth place.

Bottom Five States

Maryland, Kentucky, Massachusetts, Illinois, and New Jersey rank in the bottom five states, largely a result of the low amounts of cash they have on hand and their large debt obligations. States that fail to address long-term drivers of debt and are not prepared for recessions will continue to rank poorly.

• Each state has massive debt obligations. Each of the bottom five states exhibits serious signs of fiscal distress. Their large liabilities and low cash on hand raise serious concerns about their ability to pay bills.
• Unfunded liabilities continue to be a problem. High deficits and debt obligations in the forms of unfunded pensions and healthcare benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.
• The bottom five states have changed since last year. Kentucky’s position has declined, placing it in the bottom five this year. New York is no longer in the bottom five due to improvements in budget solvency. Illinois and New Jersey improved slightly but remain in the bottom five. Massachusetts also remains in the bottom five, in slightly worse positions than last year.
  
  
  https://www.mercatus.org/statefiscalrankings

 

[Arkady]

Where does your state rank?

Top Five States

Florida, North Dakota, South Dakota, Utah, and Wyoming rank in the top five states. Top-performing states tend to have higher levels of cash, low unfunded pensions, and strong operating positions.

• Low debt and a strong cash position help maintain fiscal discipline. Keeping debt levels low, saving cash to pay bills, and maintaining solvent budgets reflect a culture of fiscal discipline. The first-place position of Florida in particular demonstrates that this is possible even with a relatively larger population and higher pension costs that arise from an aging population.
• Oil and gas revenues play a role in short-term fiscal health. The top-performing states owe some of their success to unpredictable revenue sources. As oil prices have been declining, however, we see this detrimentally affecting their budgets. Alaska has moved out of the top five, and Wyoming has moved from third to fifth as a result. North Dakota’s revenues also declined and have the potential to impact their future rankings.
• Pensions and health care still pose long-term challenges to top-performing states. While these top five states are considered fiscally healthy relative to other states because they have significant amounts of cash on hand and relatively low short-term debt obligations, each state, especially Wyoming, faces substantial long-term challenges related to its pension and healthcare benefits systems.
• The top five states have changed since last year. Alaska and Nebraska dropped out of the top five, allowing Florida and Utah to join. North Dakota and South Dakota improved from fourth and fifth to second and third, respectively, pushing Wyoming down two spots to fifth place.

Bottom Five States

Maryland, Kentucky, Massachusetts, Illinois, and New Jersey rank in the bottom five states, largely a result of the low amounts of cash they have on hand and their large debt obligations. States that fail to address long-term drivers of debt and are not prepared for recessions will continue to rank poorly.

• Each state has massive debt obligations. Each of the bottom five states exhibits serious signs of fiscal distress. Their large liabilities and low cash on hand raise serious concerns about their ability to pay bills.
• Unfunded liabilities continue to be a problem. High deficits and debt obligations in the forms of unfunded pensions and healthcare benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.
• The bottom five states have changed since last year. Kentucky’s position has declined, placing it in the bottom five this year. New York is no longer in the bottom five due to improvements in budget solvency. Illinois and New Jersey improved slightly but remain in the bottom five. Massachusetts also remains in the bottom five, in slightly worse positions than last year.
  
  
  https://www.mercatus.org/statefiscalrankings

This is a propaganda piece by a free market advocacy group, funded by the likes of the Koch Industries. In fact, one of the Kochs is on the board, and the founder is one of Koch Industries' employees, Richard Fink. They build their rankings specifically to push a right-wing view of what solvency is supposed to look like. For example, they factor in PER CAPITA surplus/deficit, and per-capita long-term liabilities, rather than per-GSP. That's done with the knowledge that the larger deficits will tend to show up in the richer (generally meaning more liberal) states. Basically, it rewards a state for having a smaller government relative to population size.

It's easy to picture how that would work by imagining it in microcosm, as two families dealing with debt. One is a poor rural family of six, earning $40,000 per year, and with debt of $60,000. The other is a richer metropolitan family of three, earning $100,000 per year and with debt of $60,000. If you compared debt to income, the latter would be much better off, with debt only being 60% of income, versus 150% for the former. But if you do it per capita, then the former is only $10,000/capita and the latter is $20,000/capita, giving you the illusion that they're going to struggle more with that burden.

In addition to gaming the result by way of using per capita figures, they also count tax to income ratio against a state in the rankings. They do this with the specious reasoning that a higher ratio indicates lower service-level solvency. That makes sense if you're a professional Koch holster, and so you are forced to start with the religious conviction that taxes are bad, such that states should be penalized for them in the rankings. But it doesn't make sense in terms of measuring actual solvency.

Those who have to put their money where their mouths are, in deciding whether states are a good risk or not, certainly have a different take on these things, judging by credit ratings. For example, Massachusetts has a AA+ rating -- that's behind a handful of top-rated AAA states, but still quite respectable -- on par with North Dakota, for example, which ranks second in the nation in the Mercatus study. Meanwhile, fellow bottom-five state Maryland is at Triple A. The worst states, when it comes to credit ratings, are Illinois, New Jersey, Kentucky, West Virginia, Pennsylvania, Michigan, Kansas, Connecticut, and California.

 

[Zam-Zam]

This is a propaganda piece by a free market advocacy group, funded by the likes of the Koch Industries. In fact, one of the Kochs is on the board, and the founder is one of Koch Industries' employees, Richard Fink. They build their rankings specifically to push a right-wing view of what solvency is supposed to look like. For example, they factor in PER CAPITA surplus/deficit, and per-capita long-term liabilities, rather than per-GSP. That's done with the knowledge that the larger deficits will tend to show up in the richer (generally meaning more liberal) states. Basically, it rewards a state for having a smaller government relative to population size.

It's easy to picture how that would work by imagining it in microcosm, as two families dealing with debt. One is a poor rural family of six, earning $40,000 per year, and with debt of $60,000. The other is a richer metropolitan family of three, earning $100,000 per year and with debt of $60,000. If you compared debt to income, the latter would be much better off, with debt only being 60% of income, versus 150% for the former. But if you do it per capita, then the former is only $10,000/capita and the latter is $20,000/capita, giving you the illusion that they're going to struggle more with that burden.

In addition to gaming the result by way of using per capita figures, they also count tax to income ratio against a state in the rankings. They do this with the specious reasoning that a higher ratio indicates lower service-level solvency. That makes sense if you're a professional Koch holster, and so you are forced to start with the religious conviction that taxes are bad, such that states should be penalized for them in the rankings. But it doesn't make sense in terms of measuring actual solvency.

Those who have to put their money where their mouths are, in deciding whether states are a good risk or not, certainly have a different take on these things, judging by credit ratings. For example, Massachusetts has a AA+ rating -- that's behind a handful of top-rated AAA states, but still quite respectable -- on par with North Dakota, for example, which ranks second in the nation in the Mercatus study. Meanwhile, fellow bottom-five state Maryland is at Triple A. The worst states, when it comes to credit ratings, are Illinois, New Jersey, Kentucky, West Virginia, Pennsylvania, Michigan, Kansas, Connecticut, and California.

Which fact, specifically, do you dispute?

 

[Arkady]

Which fact, specifically, do you dispute?

I'm not disputing the facts underlying the calculation. I'm disputing the method for assigning values to those calculations. To go back to my microcosm example, someone who argued the family of six was in worse shape than the family of three wouldn't be taking issue with the underlying figures about earnings, debt, and family size. He'd be taking issue with treating the debt-per-capita calculation as the telling one, rather than debt-per-income.

 

[marvin martian]

Where does your state rank?

Top Five States

Florida, North Dakota, South Dakota, Utah, and Wyoming rank in the top five states. Top-performing states tend to have higher levels of cash, low unfunded pensions, and strong operating positions.

• Low debt and a strong cash position help maintain fiscal discipline. Keeping debt levels low, saving cash to pay bills, and maintaining solvent budgets reflect a culture of fiscal discipline. The first-place position of Florida in particular demonstrates that this is possible even with a relatively larger population and higher pension costs that arise from an aging population.
• Oil and gas revenues play a role in short-term fiscal health. The top-performing states owe some of their success to unpredictable revenue sources. As oil prices have been declining, however, we see this detrimentally affecting their budgets. Alaska has moved out of the top five, and Wyoming has moved from third to fifth as a result. North Dakota’s revenues also declined and have the potential to impact their future rankings.
• Pensions and health care still pose long-term challenges to top-performing states. While these top five states are considered fiscally healthy relative to other states because they have significant amounts of cash on hand and relatively low short-term debt obligations, each state, especially Wyoming, faces substantial long-term challenges related to its pension and healthcare benefits systems.
• The top five states have changed since last year. Alaska and Nebraska dropped out of the top five, allowing Florida and Utah to join. North Dakota and South Dakota improved from fourth and fifth to second and third, respectively, pushing Wyoming down two spots to fifth place.

Bottom Five States

Maryland, Kentucky, Massachusetts, Illinois, and New Jersey rank in the bottom five states, largely a result of the low amounts of cash they have on hand and their large debt obligations. States that fail to address long-term drivers of debt and are not prepared for recessions will continue to rank poorly.

• Each state has massive debt obligations. Each of the bottom five states exhibits serious signs of fiscal distress. Their large liabilities and low cash on hand raise serious concerns about their ability to pay bills.
• Unfunded liabilities continue to be a problem. High deficits and debt obligations in the forms of unfunded pensions and healthcare benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.
• The bottom five states have changed since last year. Kentucky’s position has declined, placing it in the bottom five this year. New York is no longer in the bottom five due to improvements in budget solvency. Illinois and New Jersey improved slightly but remain in the bottom five. Massachusetts also remains in the bottom five, in slightly worse positions than last year.
  
  
  https://www.mercatus.org/statefiscalrankings

My state (CA) ranks about where I expected. Not quite the open sewers Massachusetts, New Jersey, or Illinois are, but still representative of a state run by childlike progreSSive Democrats.

 

[Zam-Zam]

I'm not disputing the facts underlying the calculation. I'm disputing the method for assigning values to those calculations. To go back to my microcosm example, someone who argued the family of six was in worse shape than the family of three wouldn't be taking issue with the underlying figures about earnings, debt, and family size. He'd be taking issue with treating the debt-per-capita calculation as the telling one, rather than debt-per-income.

So none of the facts are in dispute, it's just that you don't care for them.

I'm fine with people interpreting the data for themselves.

 

[Arkady]

So none of the facts are in dispute, it's just that you don't care for them.

No. You've misunderstood. I'm fine with the facts. Facts are facts and what we feel about them doesn't matter. I do, however, object to the way the data is manipulated in order to present the ultimate findings.

I'm fine with people interpreting the data for themselves.

Agreed. People should dig into the data themselves, and interpret it. Look into the actual baseline data, rather than relying on the home-brew "fiscal condition index" prepared on behalf of Koch Industries by running the data through arbitrary formulas for propagandistic effect. The ranking is worthless, but if you track it back to the full report, you can see the data that goes into it and something of value could be derived from that.

 

[Deleted member 21794]

It's easy to picture how that would work by imagining it in microcosm, as two families dealing with debt. One is a poor rural family of six, earning $40,000 per year, and with debt of $60,000. The other is a richer metropolitan family of three, earning $100,000 per year and with debt of $60,000. If you compared debt to income, the latter would be much better off, with debt only being 60% of income, versus 150% for the former. But if you do it per capita, then the former is only $10,000/capita and the latter is $20,000/capita, giving you the illusion that they're going to struggle more with that burden.

We could always go with actual numbers instead of hypothetical scenarios:

9. Massachusetts

"On average, Massachusetts residents earn about $32,352 per year and have about $59,820 in debt per capita. That works out to a debt-to-income ratio of 1.84. Once again, like other states, the majority of that debt is mortgage debt. About 72 percent of per-capita debt in the Bay State is mortgage debt. The state's residents don't take on as much credit card debt as other states do. About 5.45 percent of per-capita [debt] is tied up in credit-card debt."

http://www.cnbc.com/2017/05/02/the-top-10-most-indebted-states-in-the-us.html

The first thing I thought was what is the reason for the debt. For example, I have a very high debt ratio. But literally 98%+ of that debt is used to produce income. Our primary residence is paid for, we have no car loans, I owe about $10,000 in student loans and we owe the dentist about $4,000. These are the only debts I have that don't produce income. From previous posts, I know you are pretty frugal as well. As we both know, that is one of the most important steps in building wealth. If one does not handle the money they have well, they likely won't handle more money well, either. I doubt we can say the same thing about people in general, regardless of what state they live in.

Not surprisingly, the top 10 list of most indebted residents is dominated by blue states. I suspect a big contributor to the high debt ratios of blue states is the cost of housing. As I happen to be a fan of real estate, I'm not so sure I'd want to point the finger of blame at people whose debt ratio is high to due real estate loans. If I lived in a blue state like California, I'd be praying for a crash in order to create buying opportunities. An anecdote along those lines. A brother-in-law of mine was offered $550,000 for his mid-60s, 3 bed, two bath home in an LA suburb. He kept it because it was his childhood home. It turns out he could have bought it back as a foreclosure for $250,000 about four years later. Buy low, sell high. That's my rant and I'm sticking to it.

 

[Arkady]

We could always go with actual numbers instead of hypothetical scenarios:

9. Massachusetts

"On average, Massachusetts residents earn about $32,352 per year and have about $59,820 in debt per capita. That works out to a debt-to-income ratio of 1.84. Once again, like other states, the majority of that debt is mortgage debt. About 72 percent of per-capita debt in the Bay State is mortgage debt. The state's residents don't take on as much credit card debt as other states do. About 5.45 percent of per-capita [debt] is tied up in credit-card debt."

http://www.cnbc.com/2017/05/02/the-top-10-most-indebted-states-in-the-us.html

The first thing I thought was what is the reason for the debt. For example, I have a very high debt ratio. But literally 98%+ of that debt is used to produce income. Our primary residence is paid for, we have no car loans, I owe about $10,000 in student loans and we owe the dentist about $4,000. These are the only debts I have that don't produce income. From previous posts, I know you are pretty frugal as well. As we both know, that is one of the most important steps in building wealth. If one does not handle the money they have well, they likely won't handle more money well, either. I doubt we can say the same thing about people in general, regardless of what state they live in.

Not surprisingly, the top 10 list of most indebted residents is dominated by blue states. I suspect a big contributor to the high debt ratios of blue states is the cost of housing. As I happen to be a fan of real estate, I'm not so sure I'd want to point the finger of blame at people whose debt ratio is high to due real estate loans. If I lived in a blue state like California, I'd be praying for a crash in order to create buying opportunities. An anecdote along those lines. A brother-in-law of mine was offered $550,000 for his mid-60s, 3 bed, two bath home in an LA suburb. He kept it because it was his childhood home. It turns out he could have bought it back as a foreclosure for $250,000 about four years later. Buy low, sell high. That's my rant and I'm sticking to it.

Yes, I think that debt/income ratio analysis is a lot more sensible than the debt/capita method used by the Koch-funded outlet.

As with your example, the other big issue to consider is what the debt is being piled up for. Not all debt is created equal. There was a time when my debt-to-income ratio was gigantic, right after I got out of law school. But that made sense, because my education improved my skills and credentials, allowing a higher future income, allowing me to pay it all off in under ten years. In a similar sense, a state could be running up debt to train a world-beating work force or to build out elite economic infrastructure, etc. That could make the debt much easier to handle in the future. There's also the issue of paying for the "ounce of prevention" to avoid paying for the "pound of cure" -- for example, running up a little debt now to finance an environmental clean-up, and thereby saving a lot of money down the road in avoided illnesses. Or running up debt to pay for earlier intervention with at-risk kids, and thereby saving on a lifetime of jail costs.