July 11, 2017

#43 | Ranking the States by Fiscal Condition: California

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On the basis of its fiscal solvency in five separate categories, California ranks 43rd among the US states for its fiscal health. California’s performance across several categories is weak. The state has between 75 percent and 154 percent of the cash needed to cover short-term obligations; this is far lower than the average in the states. California’s budgetary solvency is much stronger. Revenues exceed spending by 6 percent, and net position improved by $403 per capita. On a long-run basis, California’s net asset ratio of −0.62 indicates the state is reliant on debt to finance its operations. Long-term liabilities are 93 percent of total assets. On a guaranteed-to-be-paid basis, unfunded pension obligations and OPEB are 48 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. (California ranks 45th.)
  • Budget solvency measures whether a state can cover its fiscal year spending using current revenues. Did it run a shortfall during the year? (California ranks 12th.)
  • 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? (California ranks 45th.)
  • 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? (California ranks 29th.)
  • 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? (California ranks 41st.)

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

To read all our work on California, go to mercatus.org/states/california.