State Financial Position Index (SFPI) and competitiveness posture report

 

Overview:

PwC released the State Financial Position Index (SFPI) and competitiveness posture report in 2015 that shed light on the actual and relative financial position and financial posture of states so that stakeholders will have a better understanding of where their state stands as compared to others. We have updated the rankings of the relative financial condition and competitive posture of the 50 states in the United States. 

The rankings are based on financial information contained in the audited financial statements for each state for Fiscal 2015 as summarized by the Institute for Truth in Accounting, and a composite ranking of each state’s competitive posture in 2016 based on independent assessments by CEO Magazine, CNBC and Forbes. The report also includes disclosure of whether each state had a net positive or negative migration for the period July 1, 2015-June 30, 2016 according to the US Census Bureau.

The overall rankings for the states did not change dramatically from the prior year. Most of the states with better relative financial positions also rank highly in competitiveness and are net inbound states. Conversely, most of the states with a poor relative financial positions rank low in competitiveness and are net outbound states. As a result, the higher ranked states generally are better positioned for the future while the lower ranked states need to engage in a range of transformational reforms in order to help create a better future. The single largest challenge for most of the lower ranked states is unfunded pension and retiree health care obligations.

 

 

Relative financial position and competitiveness by state

 

Ten states had positive net positions per taxpayer versus eleven in the prior year. The top 5 states in the new rankings based on relative financial position are: Alaska, North Dakota, Wyoming, Utah and South Dakota. While Alaska ranked first in relative financial position, it ranked in the bottom quintile in competitiveness and was a net outbound state. It also faces serious short-term budget challenges due to lower energy prices and large unfunded retirement obligations.

The bottom 5 states in the new rankings are New Jersey, Kentucky, Illinois, Connecticut and Massachusetts. New Jersey replaced Illinois as the state with the worst relative financial position. This was due primarily to a significant increase in the state’s unfunded pension obligations. New Jersey also ranked in the bottom quintile in competitiveness and experienced negative net migration again for the year ended June 30, 2016. Massachusetts was the only one of the bottom five states to not rank in the last two quintiles for competitiveness. In addition, Massachusetts and Kentucky were the only two states in the bottom five that had positive net migration for the year ended June 30, 2016.

New Mexico experienced a dramatic improvement in its relative financial position moving to a positive net position and Number 8 overall ranking from a negative relative financial position and a Number 32 raking in the prior year.  This was directly attributable to the reclassification of approximately $12 billion in land trust assets from private to public ownership for financial reporting purposes.

If Puerto Rico was added to the list, it would have been ranked last by a wide margin. Puerto Rico also ranks poorly in competitiveness and is a net outbound state. The financial and government restructuring efforts currently in process in Puerto Rico may well be a precursor to similar future actions by several troubled states in the United States.

 

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