78 Five of the financial indicators Surplus per capita, Long-term liability per capita, Tax per
capita, Revenues per capita, and Expenses per capita are not presented as ratios and therefore, require adjustment due to yearly fluctuations in inflation. These financial
indicators are deflated using the GDP price index. To ensure that the financial indicators are interpreted correctly when added together, five are transformed so that higher values
denote higher solvency. This was done by taking the inverse of the original variable.
6
All the financial indicators were standardized and converted to z scores. Each index was
created as follows; the standardized financial indicators underlying each solvency index were added together and then averaged. The resulting score is the value for each index.
All states for which data is available are included in the analysis.
4.3 Data
Data was collected from Comprehensive Annual Financial Reports CAFRS for all 50 states for fiscal years 2002 through 2009. With the exception of New York, all
states had implemented GASB 34 by 2002 and therefore their CAFRS were prepared using the GASB 34 financial reporting model.
7
Two financial statements in each CAFR – the Statement of Net Assets and the Statement of Activities – are the sources of
government-wide financial information. Information on how states report on their infrastructure assets was also collected from the CAFRs. Annual estimates of resident
population by state for the years 2001 through 2009 was taken from the U.S. Census
6
Long-term liability ratio, long-term liability per capita, tax per capita, revenue per capita and expenses per capita indicate a lower level of solvency the higher the value. The other six financial indicators indicate a
higher-level solvency the higher the value. When aggregating these values and comparing between the different indexes, it is necessary that a higher value have the same meaning for all financial indicators. To
ensure this, the inverse of the five ratios listed above are taken. By taking the inverse, a higher value on the five indicators listed also indicates a higher level of solvency.
7
GASB Statement No.34: Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments required governments to report consolidated government-wide financial
statements that use the full accrual accounting basis. This included the production of the Statement of Activities and Statement of Net Assets.
79 Bureau, Population Division. Data on the economic growth within a state in one year is
taken from the State Coincident Index published by the Federal Reserve Bank in Philadelphia. The Bank generates and reports an indexed measure of economic growth in
each state by month based on four economic indicators: nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary
disbursements deflated by the consumer price index U.S. city average Crone 2006. Total personal income by state for the years 2001 through 2009 was collected from the
U.S. Bureau of Economic Analysis, State Annual Personal Income tables. The general fund ending balance and total expenditures figures used to create the ending budget
balance as a percent of total expenditures variable are consistently taken from the NASBO Fall Fiscal Survey of the States for the years 2002 through 2010.
4.4 Results 4.4.1 Descriptive Analysis
