July 11, 2017

#20 | Ranking the States by Fiscal Condition: Arkansas

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On the basis of its solvency in five separate categories, Arkansas ranks 20th among the US states for its fiscal health. Its new rank makes Arkansas one of the biggest movers since last year’s edition, primarily a result of improvements in the state’s operating ratio and surplus per capita. Arkansas holds between 3.07 and 3.98 times the cash needed to cover short-term obligations, higher than the average for the states. Revenues exceed expenses by 4 percent, and the state’s net position increased by $287 per capita. On a long-run basis after meeting its debts, Arkansas’s net assets are 10 percent of total assets. Total primary government debt is $4.1 billion, or 3.5 percent of state income, slightly lower than the US average. Long-term liabilities are 33 percent of total assets, well below the US average. On a guaranteed-to-be-paid basis, unfunded pension liabilities are $38.71 billion or 33 percent of state income, and OPEB is 2 percent of state 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. (Arkansas ranks 14th.)
  • Budget solvency measures whether a state can cover its fiscal year spending using current revenues. Did it run a shortfall during the year? (Arkansas ranks 24th.)
  • 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? (Arkansas ranks 23rd.)
  • 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? (Arkansas ranks 45th.)
  • 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? (Arkansas ranks 27th.)

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

For all our work on Arkansas, go to mercatus.org/states/arkansas.