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Short-term finances earn state high ranking: Pensions, retirement could be threatened

GRAND FORKS — Despite a potentially bumpy long-term budget outlook, North Dakota landed near the top of a fiscal condition report ranking all 50 states by their ability to meet their financial needs

The state comes in third behind Alaska and South Dakota. Nebraska and Wyoming round out the top five of the rankings. Minnesota followed in the middle of the pack at 35th.

Produced by Sarah Arnett of George Mason University’s Mercatus Center, the rankings take into account each state’s access to cash, its ability to generate revenue to cover short-term and long-term expenses and its ability to provide residents with adequate services.

The data came from each state’s 2012 comprehensive annual financial report.

North Dakota can thank oil tax money for part of its ranking, according to Mercatus Center senior research fellow Eileen Norcross.

“Other states are relying on income and sales tax” and don’t have large oil tax revenues to draw from, Norcross said.

That’s good news in the short term for North Dakota and Alaska, another big oil producer, but long-term financial obligations pulled North Dakota’s rankings down in other areas.

Other rankings

In addition to the overall condition rating, states also were ranked by each of the four study parameters.

North Dakota landed at No. 2 when looking at budget solvency or its ability to generate revenue to cover expenditures in a single fiscal year.

According to Arnett, the state had a surplus per capita of about $3,100.

Alaska’s ratio was about $5,300 per person, much larger than the $163 per person posted by the final member of the top five states, Nebraska. Minnesota was 30th in this ranking.

North Dakota was sixth best when it came to cash on hand to meet short-term budget obligations while Minnesota held 35th.

Other rankings weren’t so rosy.

The measure of North Dakota’s ability to use its resources to provide its residents with an adequate level of service put the state at 49th. Top-ranked Alaska came in dead last while Minnesota landed at 40th.

Per capita taxes, revenue and expenditures were used to determine this ranking, which, according to Arnett, is the hardest to measure.

“Many factors not captured by financial data may affect a state’s ability to meet its service obligations,” she wrote.

In her report, Arnett notes high values in these three categories indicate a low service level, with higher values suggesting higher revenues and tax burdens and more expensive service.

Both North Dakota and Alaska record much higher tax, revenue and expenditure per capita rates than their top five counterparts.

North Dakota also found itself in 14th place and Minnesota in 23rd when it came to their ability to cover long-term liabilities — debts or other financial obligations — such as infrastructure maintenance and pension plans.

North Dakota has dedicated an increasing amount of its budget to transportation system spending, which includes maintenance, for at least the past 10 years.

In the 2003-05 biennium, spending was about $785 million. The most recent budget lists transportation appropriations at about $3.4 billion.

Pension problems

Public pension systems should be a cause for concern for most states including North Dakota, according to Norcross.

“In the short term, pension numbers aren’t measuring or capturing the full liabilities,” she said. “States need to pay attention to these liabilities.”

North Dakota is one of these states, according to Norcross.

The funding goal of its Public Employees Retirement System is to meet the long-term benefit promises through contributions and investment income.

Its funding ratio — the value of its assets divided by its liabilities — for the past fiscal year was 62 percent, according to a 2013 audit conducted on the system.

The total value of the system’s unfunded liabilities hit $1.03 billion between June 30, 2012, and 2013.

According to its 2012 financial report, NDPERS had about 21,500 contributing members and 8,700 retirees and beneficiaries receiving benefits.

From her own research into public pension plans, Norcross said the liabilities reported by public pension systems and used in Arnett’s study are much lower than liabilities adjusted for risk.

Over the period of the next 15 years, she said North Dakota’s unfunded pension liabilities — adjusted for risk — could reach $7 billion.

Norcross added Minnesota’s unfunded liabilities could hit $79 million in that same timeframe.

Changing up in rank

Stacking up: A George Mason University Mercatus Center study ranked the fiscal condition of the United States based on four parameters. Here’s where North Dakota and Minnesota landed.

Overall fiscal condition: North Dakota, 3rd; Minnesota, 35th.

Cash solvency: (Access to cash to pay short-term bills) North Dakota, 6th; Minnesota, 35th.

Budget solvency: (Ability to create revenue to cover expenditures) North Dakota, 2nd; Minnesota, 30th.

Long-run solvency: (Ability to use revenue to cover long-term financial obligations) North Dakota, 14th; Minnesota, 23rd.

Service-level solvency: (Ability to use resources to provide residents with adequate services) North Dakota, 49th; Minnesota, 40th.