How well run is your state? Assessing a state’s management quality is no simple task. The current economic climate and standard of living in any given state are not only the results of recent policy choices and developments, but may also be dependent on forces outside a state’s control and, often, decisions made decades ago.
For each of the past six years, 24/7 Wall St. has attempted to answer this question by surveying various characteristics of each state. To determine how well states are managed, we examine key financial ratios, as well as social and economic outcomes. This year, North Dakota is the best-run state in the country for the fourth consecutive year, while New Mexico replaced Illinois as the worst-run state.
There is no comprehensive measure of a state government administration and how well or poorly it runs the state. Selecting appropriate criteria to compare the 50 states is difficult because there is so much variation among them. Some states are rich in natural resources, for example, while others rely on high-skilled sectors, such as technology and business services. Some depend disproportionately on one industry, while economies in other states are more balanced. Further, some states are more rural, while others are highly urbanized and densely populated.
As a result, policy decisions that may work in one state might not work in another. For example, while taking on large amounts of debt to fund a state’s spending is often fiscally irresponsible, wealthier states arguably benefit from higher debt levels — they can use the extra funds to pay for public welfare services and are able to pay it back without much effort.
Most of the conditions used to determine how well or poorly run a state is do not tend to fluctuate a great deal from year to year. Measures such as income, poverty, and violent crime rates do not usually change meaningfully from year to year. Still, the rank of some states changed significantly this year. Maine, West Virginia, and Alaska each regressed by at least 10 spots. Alaska, this year’s 18th-best run state, was seventh-best last year. Meanwhile, four states improved by nearly 10 spots. Colorado improved from 17th-best to eighth-best.
This year, a number of the best-run states have again benefited from an abundance of natural resources, although this can often manifest as an overreliance. North Dakota, Wyoming, and Texas are among the top 10 best-run states, and in all three, the mining industry — which includes fossil fuel extraction — is a major contributor to state GDP. Due in large part to the mining sector, North Dakota, Texas and Wyoming led the nation in real GDP growth in 2014. Alaska has utilized its oil wealth to build massive state reserves and to pay its residents an annual dividend. However, the state’s position fell this year largely due to falling oil prices. Similarly, while North Dakota is the leader again this year, the mining industry has been subject to wild fluctuations.
While some states’ economic fortunes are closely tied to the rise and fall of individual industries, which are often outside their control, each state must make the best of its own situation. Governments, as stewards of their own economies, need to prepare for the worst, including the collapse of a vital industry. Good governance is about balancing tax collection and state expenditure in a way that provides essential services to residents without sacrificing a state’s long-term fiscal health. Many of the best-run states in the country set money aside each year for emergencies. For example, Alaska’s rainy day fund — reserves set aside to be allocated in the event of unforeseen budget shortfalls — are equal to 146.4% of its revenue, the highest such percentage of any state.
While each state is different, states at both ends of the list share certain characteristics. For example, people living in the worst-run states tend to have lower standards of living. Violent crime and poverty rates are typically higher in these states, and the share of the population with at least a high school diploma tends to be lower than the national rate.
The worst-run states also tend to have weak fiscal management, reflected by low pension funding, sparsely padded coffers, and poor credit ratings from Moody’s Investors Service and Standard & Poor’s (S&P). Illinois, the second worst-run state in America, received lower ratings than any other state from both agencies. By contrast, the majority of the 10 best-run states have perfect ratings from both agencies.
Unemployment rates are also relatively low in the nation’s best-run states. North Dakota, the top-ranked state, has an unemployment rate of 2.8%, the lowest of all states. Six of the 10 best-run states have among the 10 lowest unemployment rates. Meanwhile, unemployment is much more prevalent in the worst-run states. Louisiana and New Mexico, both among the lowest-ranked states, have the nation’s fifth- and second-highest unemployment rates, at 6.2% and 6.8%, respectively.
These are the best- and worst-run states in America.