Measuring Financial Condition: A Study of U.S. States

TLDR

The study evaluates a financial condition measure derived from government‑wide data mandated by GASB Statement No. 34. The measure comprises four solvency dimensions—cash, budget, long‑run, and service‑level—and 11 indicators applied to government‑wide information. The measure proves reliable and valid, providing a useful framework under GASB 34, while revealing substantial variation and improvement opportunities across states.

Abstract

This study tests a measure of financial condition using government‐wide information as required under the new financial reporting model set forth in GASB Statement No. 34. The measure consists of four financial condition dimensions in cash, budget, long‐run and service‐level solvencies, and 11 financial condition indicators. Results show that the measure is relatively reliable and valid and that government‐wide information reported under the requirements of GASB Statement No. 34 provides a useful reporting framework to evaluate financial condition of a government. Additionally, financial condition among states varies greatly and there is much room for improvement.