Monday, November 26, 2012

Don't live in a 'death spiral' state

That's the message of a very timely article in Forbes.  It's particularly timely because the arrival of Obamacare - which begins to take effect next year - is going to add to the pressures on such states, and make things worse instead of better.  Here's an excerpt.

Two factors determine whether a state makes this elite list of fiscal hellholes. The first is whether it has more takers than makers. A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient. A maker is someone gainfully employed in the private sector.

Let us give those takers the benefit of our sympathy and assume that every single one of them is a deserving soul. This person is either genuinely needy or a dedicated public servant or the recipient of a well-earned pension.

But what happens when these needy types outnumber the providers? Taxes get too high. Prosperous citizens decamp. Employers decamp. That just makes matters worse for the taxpayers left behind.

. . .

The second element in the death spiral list is a scorecard of state credit-worthiness done by Conning & Co., a money manager known for its measures of risk in insurance company portfolios. Conning’s analysis focuses more on dollars than body counts. Its formula downgrades states for large debts, an uncompetitive business climate, weak home prices and bad trends in employment.

. . .

A state qualifies for the Forbes death spiral list if its taker/maker ratio exceeds 1.0 and it resides in the bottom half of Conning’s ranking.

There's more at the link.  Compelling reading.

Some of the 'death spiral' states surprised me - for example, I hadn't thought to find Kentucky on the list.  For what it's worth, here they are in descending order of their taker/maker ratios:

New Mexico (1.53)
Mississippi (1.49)
California (1.39)
Alabama (1.10)
Maine (1.07)
New York (1.07)
South Carolina (1.06)
Kentucky (1.05)
Illinois (1.03)
Hawaii (1.02)
Ohio (1.00)

It's useful to have a list of where not to move to!



LL said...

In the spirit of unity, I'm sure that the maker states will be happy to bail out the taker states....

Anonymous said...

In Illinois they raised the state income tax 67% last year. Even after doing so the state still has unfunded pension liabilities of an estimated 95 billion dollars. Why? The Chicago welfare state. Miles and miles of takers stacked to the stratosphere in high rises. We're not just paying to feed, house and clothe them. We are paying to treat their bullet and stab wounds. Treat thier drug addictions and incarcerate the few that get caught. Our society needs a flea bath.

Anonymous said...

I live in Ohio.
Though based on the election results...this doesn't surprise me.