July 11, 2017

#17 | Ranking the States by Fiscal Condition: Alaska

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On the basis of its solvency in five separate categories, Alaska ranks 17th among the US states for fiscal health. This year’s rank reflects the state’s reliance on oil revenues. The state has high levels of cash—between 24.7 and 25.7 times the amount of cash needed to cover short-term bills. However, most of this revenue is part of the Alaska Permanent Fund and is not readily available for spending. With the fall in oil prices between FY 2014 and FY 2015, Alaska’s budgetary position weakened significantly. An operating ratio of 0.67 indicates that revenues only cover 67 percent of expenses. The state’s net position dropped dramatically by $5,734 per capita. On a long-run basis, Alaska performs better. After meeting its debts, Alaska’s net assets are 78 percent of total assets, and long-term liabilities are 10 percent of total assets. Total debt amounts to 4.5 percent of personal income. On a guaranteed-to-be-paid basis, unfunded pension liabilities are $30.08 billion, or 73 percent of personal income, which is much higher than the national average of 35 percent. These pension liabilities will decline over time since Alaska closed its defined benefit system to new hires in 2005.

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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. (Alaska ranks 1st.)
  • Budget solvency measures whether a state can cover its fiscal year spending using current revenues. Did it run a shortfall during the year? (Alaska ranks 50th.)
  • 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? (Alaska ranks 7th.)
  • 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? (Alaska ranks 11th.)
  • 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? (Alaska ranks 50th.)

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

To read all our work on Alaska, go to mercatus.org/states/alaska