WASHINGTON – Massive public debt obligations in New Jersey, Illinois and Massachusetts have caused their fiscal conditions to be ranked at the bottom among states in the nation, according to a study released by the Mercatus Center at George Mason University.

The analysis looked at two-short term factors -- cash solvency and budget solvency – and three long-term indicators -- long-run solvency, the capacity to raise taxes, and trust fund solvency --in determining the rankings. The short-term measures each received a 35% weight while the long-term issues were each weighted 10%.

New Jersey's and Illinois' rankings aren’t a surprise because both states have been struggling with structural budget deficits and heavy debt loads, said Eileen Norcross, the director of the state and local policy project at Mercatus who co-authored the report.

“This has been a long-time coming for these states,’’ Norcross said in an interview. “Both of these states have habitually underfunded their pensions and the amount they will have to pay out is growing and that will be the case for a while. At the same time they have other pressures in their budgets, so I think they are going to struggle for the near future.’’

Massachusetts ranked near the bottom because of the state’s weak cash position.

“They do seem to not have a lot saved for a rainy day,’’ Norcross said. “And we do rate the short-term more heavily than the long-term. Massachusetts in 2016 only had 96% of the revenues needed to pay expenses. When revenues don’t match expenses, that hurts you in these rankings.’’

The bottom five states also include Maryland and Kentucky. The Kentucky Retirement System and the Kentucky Teacher Retirement Systems have had a combined $6.9 billion negative cash flow since 2005, according to a report issued in May by PFM Group.

The balance sheets of the states were driven by new accounting standards by the Governmental Accounting Standards Board (GASB Statement No. 68) that require the reporting of public employee pension obligations.

To their credit, the public employee pension plans in New Jersey and Illinois were among only 13 plans nationwide that fully adopted this new accounting standard, said Norcross.

The Kentucky Teachers’ Retirement System and several smaller plans for Arizona elected officials, Colorado judges, and Rhode Island judges also were in that group, according to another Mercatus study Norcoss co-authored last month.

In addition, a sharp drop in oil prices has adversely impacted energy dependent states, which was exemplified by Alaska dropping from the top spot in 2016 to No. 17 in the new rankings for fiscal conditions.

Alaska’s state revenues exceeded annual expenses by 55% in 2014, but revenue deteriorated to 57% of expenses in 2015, leading to the lower 2017 ranking.

“Their net position dropped by $10 billion in their financial statements,’’ Norcoss said. “That just shows the dramatic effect of oil prices dropping.’’

Declining prices in the oil and natural gas industry also led to the drop in the ranking of Wyoming, another state dependent on energy production, which moved down to number five from three. And Texas fell to number 23 from 16.

Mercatus capped the role that cash-on-hand played in its new rankings this year, which had an adverse impact on both Alaska and North Dakota.

On the sunny side of the findings, the report ranked Florida in the best financial shape followed by the western states of North Dakota, South Dakota, Utah and Wyoming.

Big gains were recorded by Arkansas (20 from 28) Connecticut (37 from 50), Delaware (31 from 38), Hawaii (27 from 45), Maine (35 from 43), North Carolina (15 from 21) and Oregon (21 from 30).

The study highlighted some states as “big movers’’ that dropped significantly in the ranking. In addition to Alaska, Colorado (30 from 22), Louisiana (44 from 33), New Mexico (41 from 34) and Pennsylvania (45 from 39) also dropped significantly.

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