Special Report

The Best- and Worst-Run States in America: A Survey of All 50

Source: Thinkstock

16. Michigan
> 2016 Unemployment: 4.9% (20th highest)
> Pension funded ratio: 63.7% (14th lowest)
> Credit rating and outlook: Aa1/Stable
> Poverty: 15.0% (15th highest)

The best run states often have diverse economies and a relatively well-educated labor force. In Michigan, only about 28.3% of adults have a bachelor’s degree or higher, a smaller share than the 31.3% of American adults. Manufacturing jobs are less likely than others to require a college education, and Michigan’s manufacturing sector employs some 18.4% of the state’s labor force. Nationwide, manufacturing accounts for only 10.1% of total employment.

Overdependence on a single industry can undermine economic resilience during downturns. Despite Michigan’s reliance on manufacturing, its 2016 unemployment rate of 4.9% was in line with the annual U.S. unemployment rate. The state’s housing market has also improved substantially in recent years after being hit particularly hard during the housing crisis. The median home value in the state rose by 27% between 2012 and 2016, one of the largest increases in the country.

Source: Thinkstock

17. New Hampshire
> 2016 Unemployment: 2.8% (2nd lowest)
> Pension funded ratio: 65.5% (17th lowest)
> Credit rating and outlook: Aa1/Stable
> Poverty: 7.3% (the lowest)

New Hampshire is one of only five states with no sales tax. Partially as a result, the state government has relatively limited financial resources. The state collects the equivalent of only $1,864 in tax revenue per resident a year, the second least of any state. New Hampshire is also saddled with considerable debt, owing $6,151 per resident, far more than the average state debt per capita of $3,559. With little tax revenue and heavy borrowing, New Hampshire is struggling to meet its financial obligations by several measures. For example, only 65.5% of state pensions are funded, below the 71.6% average funding across all states. Additionally, New Hampshire only has about 6.5% of its annual expenditure saved in a rainy day fund, compared to the 8.2% average rainy day savings across all states.

A relative absence of serious financial hardship can be indicative of effective policies aimed at reducing poverty. New Hampshire has the lowest poverty rate in the country, at only 7.3%. The state allocates 36.2% of its annual expenditures to public welfare, more than the average of 33.1% across all states.

Source: Thinkstock

18. Montana
> 2016 Unemployment: 4.1% (17th lowest)
> Pension funded ratio: 74.5% (25th highest)
> Credit rating and outlook: Aa1/Stable
> Poverty: 13.3% (24th highest)

Montana brings in some $2,727 in tax revenue per capita annually, roughly in line with the average across all states. Despite similar tax revenue, Montana may be underprepared to fund operations in the event of disrupted or diminished revenue streams. Montana has only 6.9% of its annual budget saved in a rainy day fund, a smaller share than the 8.2% average across all states.

The small rainy day fund partially reflects the priorities of the government, as other spending categories may be taking precedence. For example, Montana allocates about double the average spending across states — relative to their budgets — to highways, natural resources, and government administration.The state’s pension system is also better funded than most. Montana has funding to back nearly three-quarters of its pension obligations, more than the average pension funding of 71.6% across all states.

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19. Vermont
> 2016 Unemployment: 3.3% (7th lowest)
> Pension funded ratio: 67.8% (20th lowest)
> Credit rating and outlook: Aaa/Stable
> Poverty: 11.9% (19th lowest)

Vermont ranked as the best run state in New England last year and the 14th best run in the country. This year, it ranks third in New England and 19th overall. Vermont’s drop in ranking this year may be due to its recent population decline, even as other states in the region have added residents.

A fiscally responsible state, Vermont has earned the top credit rating from Moody’s with a stable outlook. While obtaining health insurance is often ultimately the responsibility of the individual, Vermont has taken steps to ensure its citizens have access to medical care. The state is one of 32 to have expanded Medicaid, and Vermont allocates 5.3% of its budget to health care spending, considerably more than the 3.4% average across all states. While the availability of jobs can be affected by forces outside the government’s control, the government can enact policies that attract companies and create jobs. A low unemployment rate can be indicative of sound policies. In Vermont, only 3.3% of the labor force was out of work in 2016, well below the comparable U.S. unemployment rate of 4.9%.

Source: Thinkstock

20. Wisconsin
> 2016 Unemployment: 4.1% (17th lowest)
> Pension funded ratio: 98.3% (2nd highest)
> Credit rating and outlook: Aa1/Positive
> Poverty: 11.8% (18th lowest)

An underfunded pension system is a considerable problem in many states that could potentially affect millions of Americans. But Wisconsin is not one of them. Over 98% of Wisconsin’s pension system is funded, far more than the 72% average across all states. However, Wisconsin’s well-funded pension system is partially attributable to diminished collective bargaining rights for teachers in the state following the passage of Act 10 in 2011.

Better ranked states often benefit from higher than typical tax revenue. Wisconsin brings in the equivalent of $2,945 a year per resident, roughly in line with average per capita tax revenue across all states.

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