CA fiscal health ranks 44th in country

money budgetIn fiscal year 2013-14, California saw a slight uptick in the condition of its fiscal health, based on fiscal solvency metrics as reported by the Mercatus Center at George Mason University.

California placed 44th among U.S. states for fiscal health, which is two places higher than the year before. During FY 2012-13, California placed 46th and had a -2.01 score on the Mercatus Center’s fiscal condition index, which is the sum of the cash, budget, long-run and service-level solvency indices. This year, the center added an additional trust fund solvency index to the formula, and ultimately scored California at -1.41 on the overall fiscal condition index.

In terms of cash solvency, California remains near the bottom of the group in 46th place. According to the report, states have, on average, two times the amount of cash as short-term liabilities. But California is one of 14 states with a cash ratio of less than one – which means we have less cash on hand than short-term liabilities. In fact, Mercatus reports, “The state can only cover 59 percent of its short-term expenses with the most liquid forms of cash.” And when less liquid forms of cash were included in the mix, California had “1.29 times cash relative to short-term bills, nearly three times less than the national average.”

Long-run solvency also dealt a blow to California’s fiscal health index. Unfunded pension obligations, state debt and OPEB liabilities indicated that the state does not have enough assets to cover its long-term liabilities. California carries a staggering primary government debt of $123.46 billion; the market value of unfunded pension liabilities totaled $636.22 billion, and the total unfunded OPEB liability reached $65.97 billion. Those liabilities represented nearly 80 percent of the California’s assets, which is double the national average. That amounts to $4,320 per capita, and a net asset ratio of -0.43.

However, California’s budget solvency and service-level solvency saw higher rankings, at 23rd and 27th place, respectively. Budget solvency deals with fiscal year spending in relation to current revenues. During fiscal year 2013-14, California was “able to meet its fiscal year spending with revenues about equal to expenses,” with a slight surplus of $260 per capita. Service-level solvency determines whether a state is in a good position to increase taxes without harming the economy and whether spending is too high relative to its tax base. According to the report, “California’s total taxes made up 6 percent of state income, about average for the nation,” while revenues made up “13 percent of total personal income.”

Read the full report here.

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