The Garden State has another accolade to its name, but this one isn’t anything to brag about. New Jersey just ranked as the most fiscally distressed state in the country, per a new Reason Foundation report.
Reason analyzed states across eight “fiscal red flags,” New Jersey registered six of them. That’s no easy feat. For comparison, the second-worst state on the list, Connecticut, registered four red flags. The report is based on eight standardized metrics measuring long-term solvency and short-term liquidity, drawn from audited annual comprehensive financial reports.
Here’s a breakdown of the eight red flags:
Long-Term Indicators
- Debt Ratio: liabilities shouldn’t exceed assets
- Unrestricted Net Position: negative values mean insufficient discretionary resources
- Revenues Less Expenditures: spending beyond revenue erodes the balance sheet
- Liabilities Per Capita: flagged if liabilities exceed $10,000/resident
Short-Term Indicators
- Quick Ratio: should hold enough liquid assets to cover the next year’s bills
- Quality of Receivables: flagged if receivables exceed 30% of annual revenue
- Cash as % of Assets: flagged if cash is under 10% of total assets
- Solvency Ratio: flagged if liabilities exceed double annual revenue
Of these, New Jersey triggered six: Debt Ratio, Unrestricted Net Position, Liabilities Per Capita, Quick Ratio, Cash as % of Assets, Solvency Ratio.
The Numbers Breakdown
Looking at the dollar signs associated with these red flags is where you really start to get a clearer picture on just how fiscally distressed New Jersey really is. Here’s the breakdown:
- Total liabilities: approximately $213.3 billion
- Per capita liabilities: about $22,968, one of the highest in the nation
- Unrestricted net position: -$190.4 billion, the most negative of any state as a share of total assets
- Cash assets: less than 0.5% of total assets at the end of FY23
- Quick ratio: 0.38, well below healthy territory
The report attributes the numbers to a variety of factors, including chronic underfunding of public employee pension systems, structural deficits accumulated over many years, high debt service requirements, rising pension contribution demands, and limited revenue growth potential.
New Jersey might be the worst, but it certainly isn’t unique for the region. The Northeast is well-represented near the top of the report for many of the same reasons.
New Jersey has a lot going for it. Strong healthcare systems, great education, and more. But, along with quality of living comes cost—and New Jersey is especially pricey. Enough to land it as the most financially distressed state in the country.
Tom is a lifelong New Jersey resident, Rutgers and FDU alumni and the publisher of The Digest.
