On the basis of its fiscal solvency in five separate categories, Puerto Rico ranks 51st among the US states and Puerto Rico for its fiscal health.
Summary
On the basis of its fiscal solvency in five separate categories, Puerto Rico ranks 51st among the US states and Puerto Rico for its fiscal health. On a cash basis, Puerto Rico has between 0.32 and 0.77 times the cash needed to cover short-term liabilities. Revenues cover 88 percent of expenses, for a deficit of $715 per capita. A negative net asset ratio of −3.32 and total liabilities that are 3.71 times the size of assets point to Puerto Rico’s heavy reliance on debt financing. Long-term liabilities are $16,646 per capita. Total debt is $72.27 billion. According to Puerto Rico’s financial reports, unfunded pension liabilities are $43.64 billion, and other postemployment benefits (OPEB) are $1.99 billion. These three liabilities are 1.85 times the size of Puerto Rico’s total 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. (Puerto Rico ranks 51st.)
- Budget solvency measures whether a state can cover its fiscal year spending using current revenues. Did it run a shortfall during the year? (Puerto Rico ranks 51st.)
- 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? (Puerto Rico ranks 51st.)
- 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? (Puerto Rico ranks 51st.)
- 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? (Puerto Rico ranks 51st.)
For a complete explanation of the methodology used to calculate Puerto Rico's fiscal health rankings, download the full paper and the dataset at mercatus.org/statefiscalrankings.