Arkansas

How Does Arkansas Compare to Other States?

Arkansas ranks 29th among US states for its fiscal health, based on its fiscal solvency in five separate categories.

In FY 2013 Arkansas had a strong cash position with sufficient liquid cash to cover short-term bills. The state was able to meet its fiscal year obligations with a small surplus of $99 per capita. On a long-run basis the state had excess assets after meeting its liabilities. Long-term liabilities represented 25 percent of total assets, putting the state above the national average. Total taxes accounted for 6 percent of state personal income. Revenues and expenses were higher than the national average, each representing 17 percent of state income, which indicates that Arkansas relied on nontax sources for expenses. (The state applied $10 billion in rainy day funds to cover increased spending in Medicaid, and higher education as well as other spending.) Arkansas carried a low level of debt relative to personal income (3 percent). Unfunded pension liabilities in the five state-operated plans totaled more than $31 billion, representing nearly 29 percent of state personal income when valued on a guaranteed-to-be-paid basis, which points to an area of future stress in state finances.

See “Ranking the States by Fiscal Condition” for a complete explanation of the methodology used to calculate Arkansas’s fiscal health rankings.

1. Arkansas ranks 20th in terms of cash solvency.

Cash solvency measures whether a state has enough cash to cover its short-term bills, which include accounts payable, vouchers, warrants, and short-term debt. Arkansas did better than the national average, with 2.28 times the liquid cash to pay for short-term liabilities. When less liquid forms of cash were included, Arkansas was in an even stronger cash position, with almost three times the amount of cash on hand to cover short-term liabilities.

2. Arkansas ranks 38th in terms of budget solvency.

Budget solvency measures whether a state can cover its fiscal year spending out of current revenues. Did it run a shortfall during the year? Arkansas was able to cover its yearly fiscal obligations with an operating ratio of 1.02, indicating that revenues matched expenses. Arkansas ran a slight surplus of $99 per capita in FY 2013.

3. Arkansas ranks 22nd in terms of long-run solvency.

Long-run solvency measures whether a state has a hedge against large long-term liabilities. Are there enough assets available to cushion the state from potential shocks or long-term fiscal risks? Net assets are those left over after the government has paid its debts. They are a subset of total assets, which also include capital and government buildings. The net asset ratio measures the total of restricted and unrestricted assets, or net assets, as a portion of total assets. Arkansas did better than the national average, with net assets making up 15 percent of the total. The long-term liability ratio measures the state’s proportion of long-term liabilities relative to total assets. The lower the ratio, the better the state’s fiscal health. Arkansas’s long-term liabilities represented 25 percent of total assets, lower than the national average of 40 percent. The long-term liability per capita captured how much the state owed in FY 2013 (e.g. payments towards debts, pension plans, and loans). Arkansas did better than the national average, with $1,914 in liabilities per capita.

4. Arkansas ranks 42nd in terms of service-level solvency.

Service-level solvency measures how high taxes, revenues, and spending are when compared to state personal income. Do states have enough “fiscal slack”? If spending commitments demand more revenues, are states in a good position to increase taxes without harming the economy? Is spending high or low relative to the tax base? Total taxes represented 6 percent of Arkansas’s total personal income. Revenues and expenses represented a much larger proportion of the state economy, with each at 17 percent. This indicates that Arkansas was reliant on nontax sources of revenues to fund expenses.

5. Arkansas ranks 31st in terms of trust fund solvency.

Trust fund solvency measures how much debt a state has. How large are unfunded pension liabilities, Other Post Employment Benefits (OPEB) liabilities, and state debt compared to the state personal income? When measured based on the government’s promise of payment, Arkansas’s unfunded pension obligations represented nearly 30 percent of the state’s economy (or total personal income). (Pension benefits are recalculated based on a discount rate of 3.38 percent to account for the government’s guarantee to pay employees earned benefits.) OPEB was relatively small at 2 percent of the state economy, and the state’s total debts accounted for 3 percent of state personal income, slightly lower than the national average of 4 percent.

State debt

State debt is calculated from each state’s Comprehensive Annual Financial Report. Arkansas carried a total bonded indebtedness of $3 billion, close to 3 percent of the state’s personal income, which was below the national average of 4 percent.

Pension liability

Pension liability is calculated from each state’s pension actuarial reports. Arkansas’s five major pension plans carried an unfunded liability of $6.89 billion. However, when valued based on the likelihood of payment, total unfunded pension liabilities amounted to almost $32 billion.

OPEB liability

OPEB liability is calculated from each state’s Comprehensive Annual Financial Report. As with many states, Arkansas’s OPEB liability was unfunded and operated on a pay-as-you-go basis. While the state’s total $2 billion OPEB liability was entirely unfunded, it was not large, representing approximately 2 percent of total personal income.