July 11, 2017

#15 | Ranking the States by Fiscal Condition: North Carolina

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On the basis of its fiscal solvency in five separate categories, North Carolina is ranked 15th among the US states for fiscal health. On a short-run basis, North Carolina has between 1.28 and 2.46 times the cash needed to cover short-term obligations, which is the state’s only metric that is worse than the national average. Revenues exceed expenses by 12 percent, and net position improved by $493 per capita in FY 2015. North Carolina’s long-run position is stronger than the average for the states. On a long-run basis, North Carolina’s fiscal position is significantly improved. It has a net operating ratio of 0.03. Long-term liabilities are 17 percent of total assets, or $1,028 per capita, which is far lower than the average across the states of $4,272 per capita. North Carolina has a low level of debt at $8.5 billion, or $846 per capita. Unfunded pension obligations, on a guaranteed-to-be-paid basis, are $89.86 billion, or 22 percent of state personal income. OPEB is 7 percent of state personal income.

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Key Terms

  • 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. (North Carolina ranks 29th.)
  • Budget solvency measures whether a state can cover its fiscal year spending using current revenues. Did it run a shortfall during the year? (North Carolina ranks 5th.)
  • Long-run solvency measures whether a state has a hedge against large long-term liabilities. Are enough assets available to cushion the state from potential shocks or long-term fiscal risks? (North Carolina ranks 8th.)
  • 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? (North Carolina ranks 17th.)
  • Trust fund solvency measures how much debt a state has. How large are unfunded pension liabilities and OPEB liabilities compared to the state personal income? (North Carolina ranks 7th.)

For a complete explanation of the methodology used to calculate North Carolina's fiscal health rankings, download the full paper and the dataset at mercatus.org/statefiscalrankings

To read all our work on North Carolina, go to mercatus.org/states/northcarolina.