| State government in Massachusetts has exhibited “serious signs of fiscal distress” and in fiscal 2015 posted an overall condition that was better than only Illinois and New Jersey, according to a new study that compared states.
The fourth annual study ranked states based on short- and long-term debt, unfunded pension and health care benefits, revenues and expenditures, cash on hand and other assets. Researchers at George Mason University’s Mercatus Center used information from audited financial reports, and said the rankings this year were influenced by new accounting standards that require states to report their net pension liabilities.
The state’s with the strongest overall fiscal condition, in order of ranking, were Florida, North Dakota, South Dakota, Utah and Wyoming.
States with the lowest rankings, including Massachusetts, were flagged for “the low amounts of cash they have on hand and their large debt obligations.”
“Kentucky, Massachusetts, Illinois and New Jersey have three commonalities: weak levels of cash solvency, large liabilities relative to assets, and unfunded pension and OPEB (other post-employment benefit) liabilities that are large relative to the income of state residents,” the study said. “On a cash-solvency basis and using the strictest measure of cash solvency, all four states have insufficient cash to cover short-term liabilities. When including less liquid forms of cash, Massachusetts and Illinois have the weakest measures of cash solvency.”
Massachusetts has long issued short-term debt to meet its cash needs, paying off that debt before the end of each fiscal year. Credit rating agencies over the years have cited a high debt load as a negative factor in Massachusetts, contrasting that with the state’s high median income and stable economic base.
Total primary government debt in Massachusetts of $28.43 billion, or 6.9 percent of personal income, is “nearly twice the average in the states,” the study said. In other states, some debt absorbed at the state level in Massachusetts is incurred at the county government level.
The study pegged the unfunded public pension liability in Massachusetts at $31.13 billion, compared to a national average of $20.62 billion.
Researchers concluded that Massachusetts is among a few states with budgets featuring revenues that fall short of expenses during the fiscal year.
“Kentucky’s net position moved in a positive direction with the state reporting a per capita surplus of $122.13,” the study said. “Massachusetts, Illinois and New Jersey each moved in a negative direction in net position, with per capita deficits of $319.43, $27.65 and $677.88, respectively.”
With super-majorities in both branches, Democrats in the Legislature have long controlled the state’s finances, which are managed on a day-to-day basis by governors and the executive branches. The study covered a fiscal year during which Gov. Deval Patrick was in charge for the first six-plus months before giving way to Gov. Charlie Baker and Lt. Gov. Karyn Polito, who took office midway through fiscal 2015.
“The Baker-Polito Administration is committed to continuing the progress we have made to get the commonwealth’s fiscal house in order, starting with eliminating the structural deficit we inherited to invest in critical priorities like public education, transportation and combatting the opioid epidemic without raising taxes on the people of Massachusetts,” Sarah Finlaw, Executive Office of Administration and Finance spokeswoman, said in a statement.
Communicating on background, a Baker administration official said the study had not taken into account the long-term impacts of the state’s well-regarded education system and its workforce and did not adjust adequately for low levels of local government debt. The official also said the state’s major health care and education sectors are better equipped than other industries to handle recessions.
The state budget on Gov. Baker’s desk calls for a roughly $100 million deposit into the state’s rainy day fund, which would bring its balance up to $1.4 billion.
Rating agency officials have urged Massachusetts to shore up its reserves, but freeing up funds for major deposits has been difficult since the state’s tax collections grew by less than 1.5 percent over most of last fiscal year. The $40.2 billion annual spending bill approved by the Legislature last week required major spending reductions – compared to the bills worked on all spring – to line up with a downwardly revised estimate of tax revenues.
