Alabama

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Summary 

On the basis of its fiscal solvency in five separate categories, Alabama ranks 15th among the US states and Puerto Rico for its fiscal health. On a cash basis, Alabama’s fiscal condition is strong. The state has between 3.58 to 4.92 times the cash needed to cover short-term liabilities. On a budgetary basis, Alabama’s revenues exceed expenses by 2 percent, producing a small surplus of $96 per capita. On a long-run basis, net assets are 9 percent of total assets, and total liabilities are 20 percent of the state’s total assets. Alabama’s total debt is $5.02 billion. When valued as guaranteed to be paid, unfunded pension liabilities amount to $60.43 billion, and other postemployment benefits (OPEB) total $11.64 billion. These three long-term liabilities are equal to 42 percent of total state personal income.

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. (Alabama ranks 11th.)
  • Budget solvency measures whether a state can cover its fiscal year spending using current revenues. Did it run a shortfall during the year? (Alabama ranks 33rd.)
  • 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? (Alabama ranks 19th.)
  • 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? (Alabama ranks 14th.)
  • Trust fund solvency measures how much debt a state has. How large are unfunded pension liabilities, OPEB liabilities, and state debt compared to the state personal income? (Alabama ranks 36th.)

For a complete explanation of the methodology used to calculate Alabama's fiscal health rankings, download the full paper and the dataset at mercatus.org/statefiscalrankings-2016-edition.