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You are here: Home / Uncategorized / Michigan’s Financial Health Not All That Good, says Study

Michigan’s Financial Health Not All That Good, says Study

June 1, 2016 by tbreport Leave a Comment

(Posted June 1) Michigan has dropped one notch to 35th place among the 50 states and Puerto Rico in an analysis of “financial health” just released by the Mercatus Center at George Mason University.

Three years ago, using slightly different criteria, Mercatus ranked Michigan 30th, which means the state has been sliding down the list since 2012.

The Mercatus study ranks each state government’s financial health based on short and long-term debt and other key fiscal obligations, such as unfunded pensions and health care benefits. This year’s study updates the version the Center published a year ago. Using the same approach pioneered in 2015, this year’s edition presents information from each state’s audited financial report in an easily accessible format, this time including the beleaguered territory of Puerto Rico to provide a benchmark of poor fiscal performance.

This year’s ranking of the states is based on their fiscal solvency in five separate categories:
1) Cash solvency. Does a state have enough cash on hand to cover its short-term bills?
2) Budget solvency. Can a state cover its fiscal year spending with current revenues, or does it have a budget shortfall?
3) Long-run solvency. Can a state meet its long-term spending commitments? Will there be enough money to cushion it from economic shocks or other long-term fiscal risks?
4) Service-level solvency. How much “fiscal slack” does a state have to increase spending if citizens demand more services?
5) Trust fund solvency. How much debt does a state have? How large are its unfunded pension and healthcare liabilities?

Michigan finishes “below average” compared with the other 50 states (and Puerto Rico) in categories #1, #2 and # 5 above. It is ranked “average” in categories #3 and #4. It is not ranked “above average” in any category.

Among its neighboring states in the industrial Midwest, Michigan finishes below Ohio (#11), Indiana (#17), Minnesota (#26), and Wisconsin (#29). Only Illinois (#47 — one of worst-rated states in the country) finishes below Michigan.

The top five states in the Mercatus ranking are Alaska (the best), Nebraska, Wyoming, North Dakota and South Dakota, in that order. The worst five besides Puerto Rico (worse than all 50 states) are Connecticut (#50), Massachusetts (#49), New Jersey (#48), Illinois, and Kentucky (#46).

Mercatus found that, on a cash basis, Michigan has between 1.04 and 2.26 times the amount of money it needs to cover short-term bills. Mercatus says that Michigan’s revenues exceed expenses by 1%, producing a surplus of $64 per capita. On a long-run basis, Michigan’s net assets are 1% of total assets, and total liabilities are 33% of total assets. Total debt is $7.41 billion. Unfunded pension liabilities are $123.31 billion, and other post-employment benefits (OPEB) add $20.6 billion in unfunded liabilities. These three liabilities are equal to 38% of total state personal income.

The full study can be viewed at mercatus.org.

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