A study by the Mercatus Center at George Mason University released Wednesday showed that on the basis of its fiscal solvency in five separate categories, Puerto Rico ranks 51st among the U.S. states and the island itself for its fiscal health.
On a cash basis, Puerto Rico has between 0.32 and 0.77 times the cash needed to cover short-term liabilities. Revenues cover 88 percent of expenses, for a deficit of $715 per capita. Cash solvency measures whether a state has enough cash to cover its short-term bills, which include accounts payable, vouchers, warrants, and short-term debt. Puerto Rico ranks 51st in this category.
However, a negative net asset ratio of −3.32 and total liabilities that are 3.71 times the size of assets point to Puerto Rico’s heavy reliance on debt financing. Long-term liabilities are $16,646 per capita. Long-run solvency measures whether a state has a hedge against large long-term liabilities. The island again ranks dead last in this category that measures whether there are enough assets available to cushion the state from potential shocks or long-term fiscal risks.
The commonwealth’s total debt is currently about $68 billion, Government Development Bank President Melba Acosta told lawmakers earlier this week. The study measures this in its “trust fund solvency” category, which measures how much debt a state has, how large its unfunded pension liabilities are, as well as how state debt compares to the state’s personal income.
According to Puerto Rico’s financial reports, unfunded pension liabilities are $43.6 billion, and other postemployment benefits are $1.9 billion. These three liabilities are 1.85 times the size of Puerto Rico’s total personal income, the study concludes.
“You shouldn’t have to be a budget expert to know where your state stands financially,” said Eileen Norcross, a senior research fellow at the Mercatus Center at George Mason, and author of the study. “These rankings give everyone that chance by putting complicated annual financial reports into context, while still allowing experts to take a deeper look at the numbers.”
“Puerto Rico can use the rankings to inform their efforts to forge a path forward. States that rank highly can use the rankings as an early warning system to identify future problems,” she said.
In the study’s rankings, Puerto Rico is in the bottom 10 of the list, behind Connecticut, Massachusetts, New Jersey and Illinois.