Monday, July 13, 2015
By The Oklahoman Editorial Board Published: July 13, 2015
OKLAHOMA lawmakers have slogged through several tough budget years, and officials predict next year won’t be much better. Yet a new national report suggests Oklahoma is among the better-run state governments, financially speaking. So things could definitely be worse.
Research from the Mercatus Center at George Mason University, authored by senior research fellow Eileen Norcross, ranks each U.S. state’s financial health based on short- and long-term debt and other key fiscal obligations, including unfunded pensions and health care benefits.
Norcross concluded Oklahoma ranks ninth-best for fiscal solvency, outperforming every state in the region.
The state fared well in several categories. In the area of “cash solvency” — Does a state have enough cash on hand to cover short-term bills? — Oklahoma ranked 15th.
In the area of long-run solvency, which measures whether a state can meet long-term spending commitments, Oklahoma was ranked sixth.
On trust fund solvency, which measures state debt (particularly unfunded pension and health care liabilities), Oklahoma ranked second.
That last category is notable in light of the impact of reforms enacted after Republicans won full control of the Legislature and governor’s office in 2010. The Mercatus report shows lawmakers should not only stick to their guns and defend those reforms, but should build upon them. Even with the state’s high ranking, and all the progress made reducing unfunded liabilities, many other state pension systems are still better funded than those in Oklahoma.
The Mercatus report also notes that Oklahoma has $689 in primary debt per capita, a figure that is lower than in all but six states. This shows Oklahoma lawmakers can make use of reasonable bond debt for infrastructure needs without destroying the state’s financial standing, especially given that much of Oklahoma’s bond debt will be paid off in the next decade.
We don’t suggest Oklahoma go to the other extreme, such as New Jersey’s staggering $4,556 in primary debt per capita. But Oklahoma clearly has room to address infrastructure needs in a fiscally responsible way.
On one subcategory — “Can the government pay bills that are due over a 30-to-60-day horizon?” — Oklahoma shows a healthy cash ratio of 2.53, meaning the state has more than twice the amount of cash needed to pay short-term liabilities. In comparison, 14 states have less cash on hand than short-term liabilities: Rhode Island, Arizona, Wisconsin, Pennsylvania, North Carolina, Maryland, New Jersey, New Hampshire, New York, California, Illinois, Massachusetts, Connecticut and Maine.
Many states on that list of 14 have substantially higher income taxes than Oklahoma, yet the “extra” money isn’t leading to improved financial status. That’s worth recalling the next time a special interest group insists Oklahoma’s problems can be solved via higher taxes.
Indeed, the net-asset ratio, which indicates a state’s ability to cover long-term liabilities, shows Oklahoma is among a group of national leaders — states with “a robust net asset ratio” of 30 to 82 percent of total assets. In comparison, states with negative ratios include New Jersey, Illinois, Massachusetts, Connecticut, California, Kentucky, New York, Maryland, Rhode Island, Pennsylvania, Wisconsin, North Carolina and Vermont.
While the Mercatus report notes Oklahoma faces some financial challenges, particularly in the area of budget solvency, there is much to like in this report. It shows that low tax rates are compatible with good financial management.