June 13, 2016

Adam Millsap: Ranking the Financial Health of the States

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In this episode of The Heartland Institute's weekly Budget & Tax News Podcast, managing editor and research fellow Jesse Hathaway talks with Mercatus Center at George Mason University's State and Local Policy Project scholar Adam Millsap about a new study ranking each US state's financial health, based on factors such as short- and long-term debt, fiscal obligations, unfunded pensions and entitlement spending.

According to Millsap, long-term obligations such as taxpayer-funded pensions and healthcare benefits strain state governments' budgets in every state. Lawmakers must consider the consequences of their decisions, and understanding how each state is performing fiscally can help policymakers do this.

In the rankings, states such as Alaska and North Dakota are doing well, not because their lawmakers are being especially responsible, but because they have such large reserves of cash on hand, making it easier to be irresponsible. These states, however, are starting to struggle, as their finances are dependent on volatile revenue sources. Comparing state governments to a class full of "C" students, Millsap explains, almost all state governments are making irresponsible fiscal decisions, but some states are being slightly less irresponsible than others. States like Alaska and North Dakota may be the best in the class, but they're still doing poorly, in absolute terms.