For John and Jane Citizen, residents of the Great State of Wherever, it can be tough to gauge just how well their state government is performing. We don't get quarterly earnings reports from the governor; there's no stock ticker to follow; and we can only live in one place at a time, so there aren't many opportunities to compare and contrast.
24/7 Wall St. is here to help. Each year, it conducts an extensive survey of all 50 states, reviewing a raft of data on financial health, standards of living, government services and more to determine how well each one is managed.
It's a complex equation -- and one that's far from being entirely under the control of your current elected officials. States with abundant natural resources (lately, think oil and natural gas reserves) should have an easier time balancing their budgets than those that lack them. Regional problems or national shifts can destroy local economies. And some states' current problems are the result of decisions made years ago.
That said, it's the responsibility of each state government to manage its affairs with the resources at its disposal, and some states are doing that much better than others.
These are the best- and worst-run states in America.
Like many of the other well-run states, Iowa is one of the nation's top agricultural centers -- farming accounted for 6.6% of the state's GDP in 2011, and contributed significantly to growth. State GDP rose by 1.9% between 2010 and 2011 -- the 12th-highest increase in the country. Iowa's unemployment rate fell from 6.3% in 2010 to just 5.9% in 2011, the nation's sixth-lowest rate.
The state has carried a low debt burden in recent years, averaging just $1,690 per capita in fiscal 2010, among the nation's lowest. The state currently has the best possible credit ratings both from Moody's and S&P.
In fiscal 2011, Utah had a budget deficit of $700 million. That was equal to 14.7% of the state's GDP, a ratio worse than half the states in the U.S. Despite that, Utah has committed to cutting spending instead of raising taxes or increasing debt. The state has also limited its borrowing. Its total debt was just under $6.5 billion in fiscal 2010, or $2,356 per capita -- less than most states -- and 40.4% of 2010 tax revenue.
Both Moody's and S&P gave Utah their highest credit ratings because of its strong fiscal management. Moody's notes that Utah has a "tradition of conservative fiscal management; rebuilding of budgetary reserves after their use in the recession; [and] a closely managed debt portfolio."
Last year, Nebraska had the second-lowest unemployment rate in the nation at 4.4%. In Lincoln, the state capital, unemployment was 4%, lower than every metropolitan area in the country except for Bismarck and Fargo in North Dakota.
Although it's far from the wealthiest state -- in fact, its median income was slightly lower than the national median -- Nebraska's economy is strong relative to the rest of the U.S. The state is a leading agricultural producer, with the sector accounting for 8.3% of the state's GDP last year. Nebraska also had the second-lowest debt per capita in the country in fiscal 2010, at $1,279, compared to the nationwide average of $3,614.
Wyoming fell out of the top spot in our survey this year, largely due to the state's contracting economy. In 2011, its GDP shrunk by 1.2%, more than any other state. As a whole, however, the state is a model of good management, with a prospering population.
Wyoming is particularly efficient at managing its debt, owing the equivalent of just 20.4% of annual revenue in fiscal 2010. It also has a tax structure that, according to the Tax Foundation, is the nation's most-favorable for businesses -- it does not have any corporate income taxes.
The state has experienced an energy boom in recent years. The mining industry, which includes oil and gas extracting, accounted for 29.4% of the state's GDP in 2011 alone, the highest level of any state. As of last year, Wyoming's poverty, home foreclosure, and unemployment rates were all among the lowest in the nation.
Debt per capita: $3,282 (22nd lowest) Budget deficit: None Unemployment: 3.5% (the lowest) Median household income: $51,704 (20th highest) Percentage below poverty line: 12.2% (13th lowest)
For the first time, North Dakota tops our list as the best run state in the country. In recent years, its oil boom has transformed the state's economy. Last year, crude oil production rose 35%. As of August 2012, the use of hydraulic fracturing in the state's Bakken shale formation had transformed it into the second-largest oil producer in the country. That energy boom brought a jobs boom to North Dakota, which had the nation's lowest unemployment rate in 2011 at 3.5%.
Between 2010 and 2011, North Dakota's GDP jumped 7.6%, by far the largest increase in the nation. This growth has also increased home values, which rose a nation-leading 29% between 2006 and 2011. North Dakota and Montana are the only two states that have not reported a budget shortfall since fiscal 2009.
Note: A previous version of this slide show illustrated "North Dakota" with an image of Mount Rushmore, which is, of course, in South Dakota. We thank our readers for pointing out the mistake, and regret the error. (And yes, the rig above really is pumping oil in the Bakken shale, in Tioga, N.D.)
Between 2010 and 2011, New Jersey's GDP contracted by 0.5%, more than all but three other states. And while its median household income and poverty rate were both third best in the nation, the tax burden on its residents was second highest in the U.S. in 2010. Residents paid 12.4% of their income in state and local taxes, higher than any other state except New York.
The state has many budget problems as well. New Jersey's debt as a percentage of revenue was 91.6%, the fifth-highest of all states.
Between 2006 and 2011, the value of homes in Arizona tumbled by 35%, more than every state except for Nevada. The state also had the nation’s second-highest foreclosure rate in 2011, with one in every 24 homes in foreclosure. In the aftermath of the financial crisis, Arizona had some of the nation’s largest budget shortfalls. In fiscal 2010, the state had a shortfall of $5.1 billion, equal to 65% of its general fund. In fiscal 2011, Arizona’s budget deficit was 39.0% of its general fund, the third-highest in the nation. In the recent state elections, residents voted on several measures intended to shore up the state’s finances. Voters rejected the continuation of a sales tax hike, while approving the restructuring of the state’s property tax assessment system.
Although many states have budget issues, Illinois’ faces among the biggest problems. In 2010, the state’s budget shortfall was more than 40% of its general fund, the second-highest of any state. Both S&P and Moody’s gave Illinois credit ratings that were the second-worst of all states. In addition, the state only funded 45% of its pension liability in 2010, the lowest percentage of any state. Governor Patrick Quinn has made the now-$85 billion pension gap a top priority for the new legislative session beginning in January.
Rhode Island’s finances were a mess in fiscal 2010. The state had $9.5 billion in unpaid debts, which came to 107.2% of that year’s revenues.At more than $9,000 per person, it’s one of the largest debt burdens in the country. The state also funded less than half of its pension obligations, worse than all states except for Illinois. In 2010, in a spectacular example of fiscal mismanagement, the state guaranteed a $75 million loan to a video game company, which has since defaulted. With one of the nation’s slowest growth rates and the third-highest unemployment rate in the U.S., at 11.3%, Rhode Island’s economy performed poorly overall.
California is 24/7 Wall St.'s "Worst Run State" for the second year in a row. Due to high levels of debt, the state's S&P credit rating is the worst of all states, while its Moody's credit rating is the second-worst. Much of California's fiscal trouble can be traced to the recent recession. Home prices plunged by 33.6% between 2006 and 2011, worse than all states except for three. The state's foreclosure rate and unemployment rate were the third- and second-highest in the country, respectively. But efforts to get finances on track are moving forward. State voters passed a ballot initiative to raise sales taxes as well as income taxes for people who make at least $250,000 a year. While median income is the 10th-highest in the country, the state also has one of the highest tax burdens on income. According to the Tax Foundation, the state also has the third-worst business tax climate in the country.
24/7 Wall St. considered data from a number of sources, including Standard & Poor's, the Bureau of Labor and Statistics, the U.S. Census Bureau, the Tax Foundation, RealtyTrac, The Federal Bureau of Investigation and the National Conference of State Legislators.
Unemployment data was taken from the Bureau of Labor Statistics. Credit ratings were from ratings agencies S&P and Moody's. We relied on the FBI's Uniform Crime Report for violent crime rate by state and large metropolitan areas. RealtyTrac provided foreclosure rates.
A significant amount of the data we used came from the Census Bureau's American Community Survey. Data from ACS included percentage of residents below the poverty line, high school completion for those 25 and older, median household income, percentage of the population without health insurance and the change in median home values from 2006 to 2011. These are the values we used in our ranking.
Once we reviewed the sources and compiled the final metrics, we ranked each state based on its performance in all the categories. All data are for the full year 2011, with the exception of debt per capita, obtained from the Tax Foundation, and state budgetary data, which came from the U.S. Census Bureau, and is for fiscal year 2010. New to this year's study was our more detailed review of state industry for 2011, from the the Bureau of Economic Analysis, exports per capita for 2011, from the Census Bureau, and the 2010 tax burden and the current tax business climate, from the Tax Foundation.