State Fiscal Rankings-ND #19

The Mercatus Center at George Mason University issued their 2018 rankings of states by fiscal condition. You can find the North Dakota discussion here. As a point of reference North Dakota was ranked in the top 5 each of the previous three years. The current ranking puts the state squarely in the average category. 

Take these rankings for what they are worth. The authors look at multiple different metrics and evaluate the commitments of the state, its ability to meet those commitments, and the ability to meet other issues that may be, as of now unforeseen. North Dakota does not fare as well on these as it has in the recent past, which should not be too much of a surprise when you consider the last couple of years performance in the economy. It was not bad, but it was not great and the state government needed to retrench. 

The one area where North Dakota did poorly was the “service-level solvency.” This metric attempts to measure the ability of the state to meet unanticipated needs (that is unexpected spending requirements) without necessarily harming the economy when they are forced to raise taxes? In this study North Dakota ranked 49th which is not good. 

This raises an interesting side question I have about a study such as this, and it is not an argument entered to sabotage the report. The fact of the matter is it would seem to matter the direction the state took to reach it’s current position. That is, a state cutting spending to balance the budget would, it seems to me, cut to the point that they can cover with current revenues, and would therefore have no additional slack. What I am saying is that I doubt many states cut spending to the point where they truly built in some degree of fiscal slack. Coming from a place where there is a necessity to cut the spending would seem to automatically hamper the ability of a state to perform well with this metric. I wonder if a multiple year average, moving average or otherwise, would change this?

While North Dakota ranks well in other areas a specific concern I have and mentioned on the Jarrod Thomas Show multiple times is the level of unfunded pension liabilities in the state. North Dakota ranks 12 but knowing the general state of pensions in the US we should still not be encouraged when they estimate a bit more than $12.5 billion in unfunded liabilities in the state. For example Nebraska has more unfunded liabilities at $22 billion, but that represents only 22% of state income while North Dakota’s amount represents 30% of state income according to the study.  

Stepping back for a moment lets think about this for a minute. As a small population state I think North Dakota is likely more volatile in general for most types of fiscal measures. We just exited an extended period of state budget cuts which, as I explain above, may work against the state in terms of measures of flexibility or slack. In all it confirms much of the radio discussion over the last several months, if not years. A low population, commodity based economy needs to be prudent at all times when thinking about fiscal matters. The full paper can be found at:

Eileen Norcross and Olivia Gonzalez. “Ranking the States by Fiscal Condition, 2018 Edition.” Mercatus Research, Mercatus Center at George Mason University, Arlington, VA, October 2018.

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