July 11, 2017

#12 | Ranking the States by Fiscal Condition: Alabama

Summary

Based on FY 2015 unaudited financials, Alabama is ranked 12th among the states for fiscal health. The state has between 4.13 and 5.53 times the cash needed to cover short-term liabilities. Revenues exactly match expenses, with the state showing a slightly improved net position of $1 per capita. On a long-run basis, a net asset ratio of −0.02 indicates that Alabama does not have any assets remaining after debts have been paid. Long-term liabilities are 32 percent of total assets, an increase over last year’s ratio of 20 percent, driven by new reporting requirements to include pension liabilities on the balance sheet. On a guaranteed-to-be-paid basis, total unfunded pension liabilities are $69.1 billion, or 37 percent of state personal income. OPEB is $11.64 billion. Together, these unfunded liabilities are equal to 44 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. (Alabama ranks 9th.) 
  • 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 44th.) 
  • 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 18th.) 
  • 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 18th.) 
  • 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.