The 50 states differ sharply in the scope of public services their state and local governments must deliver and in the costs of providing them. The governments of many states, through no fault of their own, must work relatively hard to provide the services needed by those who reside, work, travel, and vacation within their borders. The states also differ dramatically in fiscal capacity, that is, the capacity of their state and local governments to raise revenues. The degree of fiscal disparity among the states has been a salient issue throughout our nation's history, and a focal point of the recent "devolution" debate.
This article begins with a discussion of the principal issues confronting analysts in the evaluation of fiscal capacity. The author compares and contrasts alternative methods used in this evaluation, and he updates state-by-state estimates of fiscal capacity, fiscal need, and fiscal comfort to fiscal year 1996. He discusses key findings and draws implications for New England, which he finds to be by far the least fiscally stressed region in the nation.