OUR THOUGHTS ON:

Pennsylvania's Fiscal Health is Ranked Near the Bottom

State and Local Tax

By Timothy Adams

As many are suffering from cold and flu symptoms at this time of year, a recent report from the Mercatus Center at George Mason University indicates that Pennsylvania’s fiscal health is also far from good.

In the Mercatus Center report, the Commonwealth’s overall fiscal health was ranked as the 42nd worst among the 50 states.  This fiscal health check-up focused on a state’s ability to meet its financial obligations.

Sarah Arnett, a public policy researcher at the Mercatus Center, measured the respective state’s solvency based on four criteria:

  • Cash Solvency – Reflects the state’s liquidity position and the cash that can be accessed to pay its bills in the short term;
  • Budget Solvency – Defined as the state’s ability to cover its costs in the current year without creating a deficit;
  • Long-run Solvency – Measured by the state’s ability to cover all costs, including long-term expenditures such as pension obligations, with incoming revenue; and
  • Service Level Solvency – Determined as the state’s ability to provide residents with services such as health and welfare services.

Among the four above criteria, Pennsylvania’s best ranking was 26th for its ability to provide services to its residents.  The Commonwealth had its worst ranking, 47 out of the 50 states, relative to its cash solvency position.

No matter your perspective on how a particular state’s fiscal health may be measured, it is clear that Pennsylvania and many of its neighboring states are still facing challenging economic times as a result of the recent U.S. recession, questionable budget practices, tax revenues that continue to lag behind expenditures and underfunded pension and health care obligations.

It took more than a few years to create this unenviable fiscal position in many states and it will take more than a few years to return to better fiscal health.

For more information, review the Mercatus Center’s State Fiscal Condition analysis.

Questions about Pennsylvania's fiscal health? Contact Schneider Downs' State and Local Tax professionals.

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