The Best and Worst Run States in America

7/29/2019 The Best and Worst Run States in America

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The Best and Worst Run States in America

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Yahoo! editors have selected this article as a favorite of 2012. It first appeared on Yahoo! Finance inNovember and was one of the most popular stories of the month. Readers debated why California landed

on the list as the worst-run state for the second year in a row, and what characteristics the best-run statesshared. "Mostly [low-populace] states with no huge cities as well as good natural resources," user Caigonmanpointed out about the top-performing states.

How well run are Americas 50 states? The answer depends a lot on where you live.

Every year, 24/7 Wall St. conducts an extensive survey of all fifty states in America. Based on areview of data on financial health, standard of living and government services by state wedetermine how well each state is managed. For the first time, North Dakota is the best run.California is the worst run for the second year in a row.

The successful management of a state is difficult to measure. Factors that affect its finances andpopulation may be the result of decisions made years ago. A states difficulties can be caused bypoor governance or by external factors, such as extreme weather.

[More from 24/7 Wall St.:Americas Poorest States]

A state with abundant natural resources should have an easier time balancing its budget than onestarved for resources. Regional problems or the national decline of certain industries can destroylocal economies. The subprime mortgage crisis, for example, disproportionately affected stateswith strong construction and real estate markets. Such factors can be easily identified and notedas possible causes for a states poverty levels, unemployment, or strained coffers.

Despite this, it is the responsibility of each state to deal with the resources at its disposal. Eachgovernment must anticipate economic shifts and diversify its industries and attract new business.A state should be able to raise enough revenue to ensure the safety of its citizens and minimize

hardship without spending more than it can prudently afford. Some states have historically donethis much better than others.

To determine how well the states are run, 24/7 Wall St. reviewed hundreds of data sets fromdozens of sources. We looked at each states debt, revenue, expenditure and deficit to determinehow well it is managed fiscally. We reviewed taxes, exports, and GDP growth, including abreakdown by sector, to identify how each state is managing its resources. We looked at poverty,income, unemployment, high school graduation, violent crime and foreclosure rates to measure ifresidents are prospering.

The best-run states have certain characteristics in common, as do the worst run. The high-ranking

states all have well-managed budgets. Each of the top ten has a perfect, or near-perfect, creditrating from Standard & Poors, Moodys, or both. Of the ten worst-ranked, only three receivedtop scores from one agency, and none from both. California is currently the only state rated A-by S&P, the lowest score given to any state. These poor-ranked states have high debt relative toboth income and expenditure.

There is a strong correlation between well-educated populations and generally well-managedstates. Of the ten best-scoring states on our list, nine have among the highest percentages of
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adults with high school diplomas.

[More from 24/7 Wall St.:The 12 Companies Paying Americans the Least]

Employment is also closely correlated to how well a state is managed. The unemployment rates

of most of the poorly ranked states are among the highest in the country. Nine of the ten best-ranked states had an unemployment rate of less than 7% in 2011. This includes North Dakota,which had the lowest rate in the country in 2011, at just 3.6%. The average unemployment ratenationwide was 8.9% in 2011.

Best-Run States:

1. North Dakota

Thinkstock> Debt per capita: $3,282 (22ndlowest)> Budget deficit: None

> Unemployment: 3.5% (the lowest)> Median household income: $51,704 (20th highest)> Pct. below poverty line: 12.2% (13th lowest)

For the first time, North Dakota ranks as the best run state in the country. In recent years, NorthDakotas oil boom has transformed its economy. Last year, crude oil production rose 35%. As ofAugust, 2012, it was the second-largest oil producer in the country. This was due to the use ofhydraulic fracturing in the states Bakken shale formation. The oil and gas boom brought jobs toNorth Dakota, which had the nations lowest unemployment rate in 2011 at 3.5%, and economicgrowth. Between 2010 and 2011, North Dakotas GDP jumped 7.6%, by far the largest increasein 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 notreported a budget shortfall since fiscal 2009.

2. Wyoming
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Thinkstock> Debt per capita: $2,694 (18thlowest)> Budget deficit: 10.3% (32nd largest)> Unemployment: 6.0% (7th lowest)> Median household income: $56,322 (13th highest)> Pct. below poverty line: 11.3% (6th lowest)

Wyoming is not the best-run state in the nation this year. The drop is largely due to the statescontracting economy. In 2011, GDP shrunk by 1.2%, more than any other state. As a whole,however, the state is a model of good management and a prospering population. The state isparticularly efficient at managing its debt, owing the equivalent of just 20.4% of annual revenuein fiscal 2010. Wyoming also has a tax structure that, according to the Tax Foundation, is thenations most-favorable for businessesit does not have any corporate income taxes. The statehas experienced an energy boom in recent years. The mining industry, which includes oil and gasextracting, accounted for 29.4% of the states GDP in 2011 alone, more than in any other state.As of last year, Wyomings poverty, home foreclosure, and unemployment rates were all amongthe lowest in the nation.

3. Nebraska

Thinkstock> Debt per capita: $1,279 (2ndlowest)> Budget deficit: 9.7% (34th largest)> Unemployment: 4.4% (2nd lowest)> Median household income: $50,296 (22nd highest)


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> Pct. below poverty line: 13.1% (tied-15th lowest)

Last year, Nebraska had the second-lowest unemployment rate in the nation at 4.4%. In Lincoln,the state capital, the unemployment rate was 4%, lower than all metropolitan areas in thecountry, except Bismarck and Fargo in North Dakota. Although far from the nations wealthiest

statemedian income was slightly lower than the U.S. median of $50,502Nebraskaseconomy is strong relative to the rest of the U.S. The state is one of the leading agriculturalproducers, with the sector accounting for 8.3% of the states GDP last year. The state also hadthe second-lowest debt per capita in the country in fiscal 2010, at $1,279, compared to anaverage of $3,614 for states nationwide.

4. Utah

Thinkstock> Debt per capita: $2,356 (15thlowest)> Budget deficit: 14.7% (25th largest)> Unemployment: 6.7% (tied-11th lowest)

> Median household income: $55,869 (14th highest)> Pct. below poverty line: 13.5% (tied-17th lowest)

In fiscal 2011, Utah had a budget deficit of $700 million, equal to 14.7% of the states GDP. Thisdebt-to-GDP ratio is worse than half the states in the U.S. Despite these problems, Utah hascommitted to reducing expenses in place of raising taxes or increasing debt. The state has alsolimited its borrowing. Its total debt was just under $6.5 billion in fiscal 2010, or $2,356 percapitaless than most statesand 40.4% of 2010 tax revenue. Both Moodys and S&P gaveUtah their highest credit ratings because of the states strong fiscal management. Moodyscommented that Utah has a tradition of conservative fiscal management; rebuilding ofbudgetary reserves after their use in the recession; [and] a closely managed debt portfolio.

5. Iowa


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Thinkstock> Debt per capita: $1,690 (7thlowest)> Budget deficit: 20.3% (18th largest)> Unemployment: 5.9% (6th lowest)> Median household income: $49,427 (24th highest)> Pct. below poverty line: 12.8% (14th lowest)

Like many of the other well-run states, Iowa is one of the nations top agricultural centers theindustry accounted for 6.6% of the states GDP in 2011. The farm economy has contributedsignificantly to growth, with farm earnings rising rapidly and land values skyrocketing. StateGDP rose by 1.9% between 2010 and 2011the 12th-highest increase in the country. Iowasunemployment rate fell from 6.3% in 2010 to just 5.9% in 2011, the nations sixth-lowest rate.The state has carried a low debt burden in recent years, averaging just $1,690 per capita in fiscal2010, among the nations lowest. The state currently has the best possible credit ratings bothfrom Moodys and S&P.

Worst-Run States:

50. California

Thinkstock> Debt per capita: $4,008 (18thhighest)> Budget deficit: 20.7% (17th largest)> Unemployment: 11.7% (2nd highest)


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> Median household income: $57,287 (10th highest)> Pct. below poverty line: 16.6% (18th highest)

California is 24/7 Wall St.s Worst Run State for the second year in a row. Due to high levelsof debt, the states S&P credit rating is the worst of all states, while its Moodys credit rating is

the second-worst. Much of Californias fiscal woes involve the economic downturn. Home pricesplunged by 33.6% between 2006 and 2011, worse than all states except for three. The statesforeclosure 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 ballotinitiative to raise sales taxes as well as income taxes for people who make at least $250,000 ayear. While median income is the 10th-highest in the country, the state also has one of thehighest tax burdens on income. According to the Tax Foundation, the state also has the third-worst business tax climate in the country.

49. Rhode Island

Thinkstock> Debt per capita: $9,018 (3rd

highest)> Budget deficit: 13.4% (28th largest)> Unemployment: 11.3% (3rd highest)> Median household income: $53,636 (17th highest)> Pct. below poverty line: 14.7% (24th lowest)

Rhode Islands finances were a mess in fiscal 2010. The state had $9.5 billion in unpaid debts,which came to 107.2% of that years revenues.At more than $9,000 per person, its one of thelargest 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 fiscalmismanagement, the state guaranteed a $75 million loan to a video game company, which has

since defaulted. With one of the nations slowest growth rates and the third-highestunemployment rate in the U.S., at 11.3%, Rhode Islands economy performed poorly overall.

48. Illinois


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Thinkstock> Debt per capita: $4,790 (11thhighest)> Budget deficit: 40.2% (2nd largest)> Unemployment: 9.8% (tied-10th highest)> Median household income: $53,234 (18th highest)> Pct. below poverty line: 15.0% (25th highest)

Although many states have budget issues, Illinois faces among the biggest problems. In 2010,the states budget shortfall was more than 40% of its general fund, the second-highest of anystate. Both S&P and Moodys 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 ofany state. Governor Patrick Quinn has made the now-$85 billion pension gap a top priority forthe new legislative session beginning in January.

47. Arizona

Thinkstock> Debt per capita: $2,188 (12thlowest)> Budget deficit: 39.0% (3rd largest)> Unemployment: 9.5% (tied-13th highest)> Median household income: $46,709 (21st lowest)> Pct. below poverty line: 19.0% (tied-8th highest)

Between 2006 and 2011, the value of homes in Arizona tumbled by 35%, more than every stateexcept for Nevada. The state also had the nations second-highest foreclosure rate in 2011, with


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one in every 24 homes in foreclosure. In the aftermath of the financial crisis, Arizona had someof the nations 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, Arizonas budget deficit was 39.0% of itsgeneral fund, the third-highest in the nation. In the recent state elections, residents voted onseveral measures intended to shore up the states finances. Voters rejected the continuation of a

sales tax hike, while approving the restructuring of the states property tax assessment system.

46. New Jersey

Thinkstock> Debt per capita: $6,944 (5thhighest)> Budget deficit: 38.2% (4th largest)> Unemployment: 9.3% (14th highest)> Median household income: $67,458 (3rd highest)> Pct. below poverty line: 10.4% (3rd lowest)

Between 2010 and 2011, New Jerseys GDP contracted by 0.5%, more than all but three other

states. The states median household income and poverty rate were both third best in the nation.On the other hand, the states 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 exceptNew York. The state has many budget problems, as well. New Jerseys debt as a percentage ofrevenue was 91.6%, the fifth-highest of all states.

How did your state do?Click here for the full list of the best- and worst-run states.

Methodology:

24/7 Wall St. considered data from a number of sources, including Standard & Poors, the

Bureau of Labor and Statistics, the U.S. Census Bureau, the Tax Foundation, RealtyTrac, TheFederal Bureau of Investigation and the National Conference of State Legislators.

Unemployment data was taken from the U.S. Bureau of Labor Statistics. Credit ratings werefrom ratings agencies S&P and Moodys. We relied on the FBIs Uniform Crime Report forviolent crime rate by state and large metropolitan areas. RealtyTrac provided foreclosure rates.

A significant amount of the data we used came from the U.S. Census Bureaus American
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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 thepopulation 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 itsperformance in all the categories. All data are for the full year 2011, with the exception of debtper capita, obtained from the Tax Foundation, and state budgetary data, which came from theU.S. Census Bureau, and is for fiscal year 2010. New to this years study was our more detailedreview of state industry for 2011, from the the Bureau of Economic Analysis, exports per capitafor 2011, from the Census Bureau, and the 2010 tax burden and the current tax business climate,from the Tax Foundation.

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The Best and Worst Run States in America