States Ranked by Fiscal Health: Reserves, Pensions, and What They Owe

Four ledgers, one balance sheet

A state is not solvent or insolvent the way a household is. It runs four ledgers at once, and they answer different questions on different clocks. The rainy day fund answers whether the state can survive a bad revenue year without gutting services. The pension funded ratio answers whether the retirement promises already made to teachers, troopers, and clerks are backed by assets that exist today. The audited balance sheet answers whether total bills exceed total assets right now. And the credit rating answers what the bond market will charge the state to borrow, which is the market's compressed judgment of all three. A state can look healthy on one ledger and sick on another, which is why this ranking refuses to crown a winner on any single number.

The independent scorers used here each own one of those ledgers. The Pew Charitable Trusts converts every state's reserves into a single comparable figure: how many days the state could operate on its rainy day fund alone (Pew Charitable Trusts, March 2026). The Equable Institute publishes the funded ratio of each state's pension systems, the share of promised benefits already covered by assets (Equable Institute, State of Pensions 2025). Truth in Accounting reads audited financial statements and reduces each state to a per-taxpayer surplus or burden (Truth in Accounting, Financial State of the States 2025). S&P Global Ratings and the other agencies price the debt. None of these bodies is partisan, and none of them adjusts its formula for which party runs the statehouse. Neither does this ranking.

The result is a table that does not sort neatly by ideology. Low-tax Tennessee and high-tax Washington both fund their pensions above 100 percent; low-tax Kentucky and high-tax New Jersey both run pensions barely half funded (Equable, 2025). The one variable that predicts a state's place with any consistency is not tax rates, not party, and not the size of the economy. It is whether the state paid what it owed when it owed it. Everything below is an elaboration of that single fact.

The reserves era just peaked

For four straight years after the pandemic, state reserves set records. That run is over. At the end of fiscal 2025, the median state could operate on its rainy day fund for 47.8 days, down from a record 54.5 days in fiscal 2024. Pew reports it as the first decline in rainy day capacity since the 2007 to 2009 recession (Pew Charitable Trusts, March 2026; NASBO data). In aggregate the 50 states still held about $174.2 billion in rainy day savings, equal to 13.1 percent of a year's spending, but the trend line turned down for the first time in more than a decade.

The distribution is extreme. Wyoming holds 320.2 days of operating costs, a fortress built intentionally against swings in severance revenue, more than double the next state on the list. Five other states hold more than 100 days: Alaska (154.7), Idaho (148.2), North Dakota (137.9), Kentucky (110.7), and Arkansas (105.0). New Jersey holds zero (Pew, FY2025 data). The gap between top and bottom is not a rounding difference. It is the difference between a state that can weather a two-year downturn without touching services and a state that starts cutting the day revenue dips.

A reserve is not a luxury. It is the difference between trimming a budget and gutting one when revenue drops. The states at the top of this table bought themselves options. The states at the bottom will negotiate their next recession with no chips on the table. The decline in fiscal 2025 matters because it arrived while the economy was still expanding; reserves are supposed to be built in good years and spent in bad ones, and the good-year build has already stalled.

Pensions: the quiet improvement and the stubborn floor

The national pension picture improved, and the improvement was earned by markets, not by legislatures. Equable Institute projected the average funded ratio rising from 78.0 percent to 82.5 percent in 2025, with total unfunded liabilities falling from $1.54 trillion to $1.27 trillion (Equable, State of Pensions 2025). The engine was investment returns: public pension funds averaged roughly 9.5 percent in 2025, well above the 6.9 percent return most plans assume (Equable, 2025). Pew separately found state pension funding stable despite market volatility (Pew, October 2025). When markets deliver, funded ratios rise even if states change nothing. That is the catch.

The leaders are fully funded or better: Tennessee at 104 percent, Washington at 103 percent, South Dakota at 100 percent (Equable, 2025). These states pay their full actuarial bill every year, in good markets and bad. That is the entire secret. There is no other trick. Full funding is not a reward for a booming economy; Tennessee and South Dakota are not wealthy states. They simply made the payment every year, and the funded ratio is the receipt.

The floor has not moved. Illinois (52 percent), Kentucky (54 percent), and New Jersey (55 percent) remain below the 60 percent line Equable labels distressed, with Mississippi in the same territory (Equable, 2025). Illinois alone carries more than $211 billion in unfunded liabilities by its own plans' accounting. These gaps were dug over decades by legislatures of both parties that made promises and skipped the payments. A good market year lifts the ratio a point or two; it does not fill a hole that took thirty years of deferral to dig. Only actions matter, and the actions are in the funded ratios.

What the auditors say versus what the actuaries assume

Truth in Accounting reads each state's audited financial statements and asks one question: if every bill came due, what would each taxpayer owe or be owed? For fiscal 2024, 25 states could not pay their bills, with a combined shortfall of $765 billion against $2.9 trillion in total debt and $2.2 trillion in assets (TIA, Financial State of the States 2025). That was a slight improvement over the prior year's $800 billion shortfall, and the split held at 25 sunshine states to 25 sinkhole states, exactly even.

The extremes are stark. North Dakota shows a $63,300 surplus per taxpayer, Alaska $48,500, Wyoming $27,200, Utah $14,400, Tennessee $10,900. Connecticut and New Jersey each show a $44,500 burden per taxpayer, the two heaviest in the country (TIA, 2025). The surplus states share a profile: small governments, resource or growth revenue, and the discipline to fund obligations as they accrue. The burden states share the opposite: large accumulated pension and retiree-health promises that were never fully funded when they were made.

ALEC's Unaccountable and Unaffordable series goes further, discounting pension promises at a risk-free rate instead of assumed investment returns. On that basis, national unfunded pension liabilities approach $7 trillion, roughly $21,000 per American (ALEC). The per-capita leaders are Alaska near $46,000, Illinois near $37,000, Hawaii near $36,500, and California near $35,800, while Tennessee and Indiana alone stay under $10,000 (ALEC, Unaccountable and Unaffordable). Readers should understand the dispute: official accounting assumes markets deliver the assumed 7 percent, ALEC assumes a promise guaranteed by law should be valued as if it were as safe as a Treasury bond. The truth of any given retiree's check will be settled by future returns. What matters for this ranking is that the rank order of states barely changes under either method. The same states are at the top and the same states are at the bottom whether you use the actuaries' math or the economists' math.

The improvement in the national shortfall is worth reading carefully. Truth in Accounting found the combined gap fell from $800 billion to $765 billion year over year, and the count of sinkhole states held at 25 (Truth in Accounting, 2025). That is progress measured in single-digit billions against a debt pile of $2.9 trillion. It reflects the same force that lifted pension ratios, strong 2024 and 2025 investment markets padding the asset side of the ledger, more than it reflects structural repair. When markets turn, the auditors' shortfall will widen again for the states that have not funded their obligations on their own, and the surplus states will barely notice. That asymmetry is the entire case for building a balance sheet in good years.

Credit markets have already voted, and some verdicts are changing

The bond market prices all of this daily, and its verdict tracks the data above. Roughly a dozen states carry AAA ratings, the highest grade, including Utah among the states ranked here (S&P Global Ratings; Ballotpedia). Illinois is the lowest-rated state in the nation, still working its way back from a decade of downgrades (S&P Global Ratings; Moody's).

What is new in 2025 is the direction of travel at the bottom of the table. New Jersey, long the weakest combined balance sheet in America, won a string of upgrades: S&P raised it to A+ with a stable outlook in August 2025, and Moody's lifted it to Aa3 in September, both agencies citing years of full actuarial pension payments and a reduced debt load (S&P Global Ratings; Moody's, 2025). Illinois recorded its tenth rating upgrade since 2019, reaching an A2 from Moody's in October 2025, its highest mark in more than two decades, and still finished as the lowest-rated state in the country (Moody's; S&P Global Ratings). New York's outlook was raised and Moody's moved it to Aa1 (S&P Global Ratings; Moody's, 2025). The rating agencies are rewarding the act of making the payment, even when the accumulated hole remains deep.

That distinction is the whole point of using four measures instead of one. A credit upgrade reflects the trajectory of recent decisions; the Truth in Accounting burden reflects the accumulated result of past ones. New Jersey can be upgraded and still sit at the bottom of this composite in the same year, because the upgrade measures where the state is heading and the composite measures where it currently stands. Both are true. This ranking captures the level; the movement section below captures the direction.

Kentucky and the two clocks of state finance

Kentucky deserves a section of its own, because it breaks the intuition that a state is either healthy or it is not. Kentucky holds the fifth-largest rainy day cushion in America at 110.7 days, and the third-worst pension funding in America at 54 percent (Pew, FY2025 data; Equable, 2025). Both facts are true at the same time. A state can be liquid on a one-year clock and insolvent on a thirty-year clock, and Kentucky is the cleanest example in the country.

The two clocks measure different risks. The rainy day fund answers a short-term question: if revenue drops next year, can the state keep the lights on without emergency cuts? Kentucky can. The pension funded ratio answers a long-term question: are the retirement promises already made backed by assets that exist today? Kentucky's are barely half backed. A cash cushion cannot be spent twice; the reserves that protect next year's budget cannot also close a pension gap that comes due over decades. Confusing the two is how states end up praised for prudence in one headline and warned about insolvency in the next.

This is why the composite here weights four dimensions equally rather than crowning a single winner on any one of them. A state flush with reserves but starved of pension funding is not healthy; it is half-healthy on a short horizon and unhealthy on a long one. The same logic runs the other way for Washington, which has thin reserves but pensions funded above 100 percent: strong where it counts over a career, weaker where it counts over a fiscal year. Fiscal health is not one number. It is at least four, and they do not always agree.

Why the same states keep winning and losing

Strip away the party labels and a single mechanism explains most of the table. The states at the top fund their obligations as they accrue and bank their windfalls; the states at the bottom deferred their obligations and spent their windfalls. North Dakota, Wyoming, and Alaska turned volatile resource revenue into permanent funds and reserves rather than permanent spending commitments (Truth in Accounting, 2025; Pew, FY2025 data). Tennessee, South Dakota, and Washington paid the full pension bill every year until the funded ratio crossed 100 percent (Equable, 2025). None of that required a booming economy. It required making the payment.

The bottom of the table tells the mirror-image story. New Jersey, Illinois, Connecticut, and Kentucky each spent years or decades skipping or shorting pension contributions, and the unfunded liability is the compounded arithmetic of those skipped payments (Equable, 2025; ALEC, Unaccountable and Unaffordable). This happened under Democratic and Republican governments alike; Connecticut and New Jersey dug their holes across administrations of both parties, and Illinois did the same. The ledger does not record which party made the promise or which party skipped the payment. It records only the balance.

That is the discipline this ranking tries to hold. It applies the identical ruler to every state and lets the surpluses and shortfalls fall where the audited numbers put them. If a reader expects the map to sort neatly by party and it does not, the map is not wrong. Some low-tax states fund their pensions fully and some do not; some high-tax states carry crushing burdens and some are climbing out. The only variable that predicts the rank with any consistency is whether the state paid what it owed when it owed it. If that principle produces discomfort, the discomfort belongs to the reader, not the data.