According to a new study by Dr. Sarah Arnett of the Government Accountability Office that measures the fiscal health of the fifty states in four categories, New Jersey ranks dead last in both annual budget and long-term solvency. The state’s poor performance in all four categories earned it the worst ranking of all fifty states in overall fiscal health.
Arnett’s report examines the health of each state according to four solvency categories: cash solvency, budget solvency, long-run solvency, and service-level solvency. (See definitions below.)
In two of the four categories, budget and long-run solvency, New Jersey ranks 50th. In cash and service-level solvency, the state doesn't fare much better, coming in at 36th and 39th, respectively.
Due to the state’s poor performance in the four categories, Arnett ranks New Jersey last of all 50 states in overall fiscal health. In her summary of the overall fiscal health rankings, Arnett highlights the long-term underlying financial problems of both New Jersey and Connecticut (49th overall):
New Jersey and Connecticut face similar problems: tax revenues that have not kept up with expenditures, use of budget practices that only appeared to balance their annual budgets, and significant debt levels as a result of decades of using bonds without being able to pay for them (State Budget Crisis Task Force 2012). In addition, both states have underfunded their pension systems, resulting in billions in unfunded liabilities.
Cash solvency: the state’s liquidity, or ability to easily access cash to pay its bills in the near term.
Budget solvency: the state’s ability to create revenue to cover expenditures over a fiscal year.
Long-run solvency: the state’s ability to use incoming revenue to cover expenditures, including long-term obligations, like pension benefits and infrastructure costs.
Service-level solvency: the state’s ability to provide its residents with an adequate level of services, “measured using taxes and revenue per capita, along with expenditures per capita.”