Report sees long-term financial challenges for State of Delaware

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FR-LONG-RUN-map-4By John Stapleford

(Stapleford is president of the Caesar Rodney Institute)

A recent report from the Mercatus Center uses 14 metrics to assess whether states can meet their short-term bills and long-term obligations. Delaware is poorly positioned with regards to its long-term obligations.

The analysis in the report is based upon FY 2013 data from the Comprehensive Annual Financial Report (CAFR) produced uniformly by every state according to criterion mandated by the Gov-ernmental Accounting Standards Board. All the CAFR financial statements are based on a full-accrual method of accounting which means long-term obligations are fully taken into account.

Of the summary measures compiled in the report, Delaware ranks well on cash solvency, the state government’s ability to pay bills that are due over a 30-to-60-day horizon. Delaware comes in a healthy 14th among all the states. With few exceptions most states have enough cash to cover short-term expenses.

Delaware’s position deteriorates as the fiscal horizon is extended.

When compared to other states in its ability to meet total fiscal year spending from reported reve-nues for FY 2013, Delaware’s rank drops to 41st. Unlike three states where FY revenue actually fell short of expenses, Delaware was slightly above breakeven. Delaware received a lower rank because 40 other states have higher surplus revenue relative to expenses. Delaware’s situation does not improve as the focus is shifted to what state government has on hand to cover long-term liabilities.  Among the states Delaware ranks 39th in long-term solvency. Delaware’s long-term liability per capita is more than double the average across all the states ($5,683 vs $2,768).

Delaware is doing well with respect to meeting its future pension obligations, but has primary debt obligations almost twice the states’ average and other retiree benefit obligations that are 3.5 times the states’ average. The latter is due to Delaware’s substantially under funded health care benefits to retirees.

Lastly, the Mercatus report estimates service-level solvency. This is a general measure of whether a state government has room to raise taxes or increase spending given its current levels relative to total state personal income. Delaware ranks a poor 46th. This results mainly from state government spending out pacing personal income growth in Delaware for at least a decade.

Obviously Delaware is digging a long-term fiscal hole that should be addressed promptly.

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