By August 5, 2017 Read More →

State’s fiscal condition ranks 42nd in nation

By DANYEL VanREENAN

The Journal

MARTINSBURG, W.Va.  — The Mercatus Center at George Mason University recently released the findings from its 2017 state fiscal rankings study, ranking West Virginia 42nd in the nation for financial health based on five separate categories.

Eileen Norcross, author of the 2017 study and director for the state and local policy project at Mercatus Center at George Mason University, said she examined each state’s audited financial reports by looking at cash solvency, the ability to cover short-term bills; budget solvency, the ability to cover fiscal year spending with current revenues; long-run solvency, the ability to meet long term commitments and the ability to absorb a potential recession; service level solvency, the amount of “fiscal slack” available for additional citizen services; and trust fund solvency, the amount of unfunded pension and healthcare liabilities.

Norcross ranked West Virginia 28th in the nation strongest in terms of budget solvency, or the ability to cover current fiscal year spending with current revenues. This is the state’s biggest financial strength, according to the study.

“Revenues exceed expenses by 3 percent, and net position improved by $221 per capita in FY 2015,” the study said.

However, West Virginia ranks 46th in service-level solvency because state spending and revenues are relatively high compared with the percent of relative income of state residents, according to Norcross.

“Total primary government debt is $2.08 billion, or 3.1 percent of state personal income,” said Norcross in the study. “West Virginia has a relatively high level of revenues and expenses as a percent of state personal income.”

Norcross said the study could be helpful for state policy makers, and it could be a helpful tool while crafting future budgets.

Analyzing the numbers, Norcross said West Virginia needs to build up its rainy day fund.

“Although there was a healthy level in the past, there doesn’t appear to be a lot there currently,” Norcross said. “(Rainy day funds) should only drop down when there is a true emergency. States should make sure they have the discipline to put aside rainy day funds and only use it when needed.”

However, Norcross said West Virginia is relatively well off in the short term with a supportable level of current spending. She said the state performs better than average in terms of unfunded healthcare pensions and liabilities as well.

“The lessons from this year’s study demonstrate that policy makers should take stock of both their short- and long term fiscal health before making public policy decisions. The quality of financial reporting also plays a large role in what is known about the states’ fiscal health,” Norcross said. “These metrics, when used alongside other information, are intended to help policy makers identify trends in state finances and respond with policies to ensure short-run solvency and long-run fiscal stability.”

In its fourth year, the study composed by Norcross and Olivia Gonzalez, research associate of the Mercatus Center at George Mason University, examines each state’s comprehensive annual financial report. Florida is currently ranked number one for national financial health, and New Jersey is ranked lowest.

“The authors’ goal is to shed light on a topic that matters to all of us, but which we are all too often in the dark on. This project is unique among them–an impartial, fully academic comparison of the financial numbers every state must report each year. Those numbers are typically useless to non-budget experts without being put in the right context. For example, with this report, West Virginia’s lower rank can give us policy direction for improving the fiscal condition of the state,” said Abbey Lovett, media relations associate at Mercatus Center at George Mason University.

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