Fiscal Capacity, Fiscal Need, and Fiscal Comfort among U.S. States: New Evidence

Abstract

During its lifetime, the U.S. Advisory Commission on Intergovernmental Relations periodically published estimates of each state's relative fiscal capacity. This research note provides new estimates updated to fiscal year 1994, the latest year for which all requisite underlying data are available. We find that dispersion in capacity narrowed from 1987 to 1994, largely because the capacities of California and the Northeast states, historically enjoying ample capacity, fell relative to the national average. We also find that these states generally experienced an increase in relative fiscal need, further narrowing interstate dispersion in fiscal comfort (capacity relative to need). We conclude with evidence suggesting that states with low fiscal comfort generally prefer relatively low levels of state and local public services.