Where Ohio stands in economic competitiveness

Several reports have been released lately that rank state standings on a variety of items.

The first is not good news. The Institute for Truth in Accounting released their analysis of the 'true' fiscal condition of states. In a press release, they write:

Only four U.S. states have sufficient assets to pay their debt and obligations related to pension and retirees' healthcare

Chicago, (June 27, 2011) -- Today, the Institute for Truth in Accounting (IFTA) announces completion of a significant, comprehensive study of all 50 states' assets and liabilities, including pension and retirement healthcare obligations. The study determined that six states had a per taxpayer burden over $20,000: Connecticut ($41,200), Illinois ($26,800), Hawaii ($25,000), Kentucky ($23,800), Massachusetts ($20,100) and New Jersey ($34,600). The Taxpayer Burden represents the funds that will be needed to pay the commitments the state has already accumulated divided by the state's taxpayers.

'If governors and legislatures had truly balanced each state's budget, no taxpayer's financial burden would exist,' said Sheila Weinberg, Founder and CEO of the Institute. She continued, 'A state budget is not balanced if past costs, including those for employees' retirement benefits, are pushed into the future.'

The study found four states (Nebraska, North Dakota, Utah and Wyoming) have assets available to pay their debt and obligations related to pension and retirees' healthcare.

The study reviewed each state's Comprehensive Annual Financial Report to offset assets against liabilities. For the first time, a detailed analysis of pension and healthcare liabilities uncovered the states' actual obligations. From these calculations, the Institute was able to determine the Taxpayer's Burden.

Employee compensation packages include retirement benefits. A portion of these benefits is earned each period and should be included in the current budget as a portion of current employee compensation costs. Instead most states handle many of benefits on a 'pay-as-you-go' basis. This obligates future taxpayers to cover these past costs - without receiving any benefits or services.

'Though 49 of the 50 states have constitutional or legal requirements to balance budgets, most states employ a variety of financial maneuvers to circumvent this requirement,' said Roger Nelson, chair of IFTA and former vice chair of Ernst & Young. 'The largest of these maneuvers is related to employee compensation.'

Ohio does rank 20th in the list, putting us in the top half of the nation, but the money needed to pay our bills is just under $18.1 billion which equals a $4,700 burden for each taxpayer in the state.

While Gov. John Kasich and the Ohio legislature are taking steps to address these financial burdens, I'm not sure the proposed fixes to date will be enough to cover the obligations.

But if that wasn't enough, the 2011 ALEC-Laffer State Economic Competitive Index was also published and it puts Ohio 49th out of 50 states in terms of our economic performance ranking (see page 101 of the linked report). The good news is that they rank us 38th in terms of our economic outlook, "a forecast based on a state’s standing (equally weighted average) in the 15 important state policy variables shown below. Data reflect state + local rates and revenues and any effect of federal deductibility." It's still in the bottom half of the nation but at least our outlook is better than our performance.

A quote from Gov. Kasich included on the last page of the report:

“The data and analysis from ALEC on state economic conditions is a powerful resource for policymakers who care about reducing spending so they can begin reducing taxes. It’s both a report card and a score card. Frankly, Ohio’s not doing as well as it needs to do. The information that ALEC provides helps us understand our competitive position and helps spur us to do better.”

Rich States Poor States - Ohio at the bottom

I've added a link to the American Legislative Exchange Council's report of the 2007 Economic Competitiveness Rating. My first post on the report did not include a link, as it wasn't yet posted on their website. It is now and is available here. This is a 114-page, 3.61 MB .pdf, so it may take a bit to download.

Ohio ranked 47th out of 50 states in terms of our overall ranking (1 was the best) and 49th in the Economic Performance Ranking, which was based on the state’s performance (equal-weighted average) in the three important performance variables highly influenced by state policy: personal income per capita (47th), absolute domestic migration (45th), and non-farm payroll employment (48th).

Should we be surprised? Taxes are anti-growth

From the National Center for Policy Analysis - Daily Policy Digest


THE (TAX) WAR BETWEEN THE STATES

An economic rating of the 50 states shows that those with the lowest taxes, government spending and regulatory burdens attract the most newcomers, say Arthur Laffer, president of Laffer Associates, and Stephen Moore, senior economics writer for the Wall Street Journal.

According to a study by the American Legislative Exchange Council:

* Over the past decade, the 10 states with the highest taxes and spending, and the most intrusive regulations, had half the population and job growth, and one-third slower growth in incomes, than the 10 most economically free states.

* In 2006 alone 1,500 people each day moved to the states with the highest economic competitiveness from the states with the lowest competitiveness.

Of all the policy variables examined, two stand out as perhaps the most important in attracting jobs and capital. The first is the income tax rate:

* States with the highest income tax rates -- California and New York, for example -- are significantly outperformed by the nine states with no income tax, such as Texas and Florida.

* As a study from the Atlanta Federal Reserve Board put it: "Relative marginal tax rates have a statistically significant negative relationship with relative state growth."

The other factor for attracting jobs and capital is right-to-work laws:

* States that permit workers to be compelled to join unions have much lower rates of employment growth than states that don't.

* Many companies say they will not even consider locating a factory in a state that does not have a right-to-work law.

The study also finds that states with antigrowth tax and spending policies don't just lose people. Noncompetitive states like New York, Michigan, Pennsylvania, Illinois and New Jersey are plagued by falling housing values, a shrinking tax base, business outmigration, capital flight and high unemployment rates, and less money for schools, roads and aging infrastructure. These factors of decline hurt the poor the most.

Source: Arthur Laffer and Stephen Moore, "The (Tax) War Between the States," Wall Street Journal, December 10, 2007.

Note - According to the WSJ, Ohio was in the bottom 10. While there are news stories about the report, I could not find a complete copy of the study.