#14 | Ranking the States by Fiscal Condition: Alabama

Summary

On the basis of its solvency in five separate categories, Alabama ranks 14th among the US states for fiscal health. Alabama has between 3.66 and 4.89 times the cash needed to cover short-term obligations. Revenues exceed expenses by 3 percent, with an improving net position of $142 per capita. In the long run, a net asset ratio of 0.01 indicates that Alabama does not have any assets remaining after debts have been paid. Long-term liabilities are lower than the national average, at 31 percent of total assets, or $2,118 per capita. Total unfunded pension liabilities that are guaranteed to be paid are $86.97 billion, or 46 percent of state personal income. OPEB are $9.48 billion, or 5 percent of 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 6th.)
• Budget solvency measures whether a state can cover its fiscal year spending out of current revenues. Did it run a shortfall during the year?(Alabama ranks 22nd.)
• 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 21st.)
• 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? (Alabama ranks 34th.)

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.

To read all our work on Alabama, go to mercatus.org/states/alabama.