The national debt recently surpassed $38 trillion, but America’s debt crisis isn’t limited to the federal government. Less well known is that, nationwide, state and local governments now hold more than $6.1 trillion of their debt.
States owe $2.7 trillion in debt, cities hold $1.4 trillion, school districts have $1.3 trillion, and counties owe $760 billion, according to a review by Reason Foundation of more than 20,000 financial statements filed by government entities for their 2023 fiscal years, the most recent period with complete data available.
In total, California’s state and local governments hold $1 trillion in debt, the highest in the nation. New York’s state and local debt is the second-most, at $800 billion, followed by Texas at $550 billion, Illinois at $410 billion, New Jersey at $310 billion, and Florida at $240 billion.
Additionally, Massachusetts, Pennsylvania, Ohio, Washington, Michigan, Georgia, Maryland, Connecticut, North Carolina and Colorado each have more than $100 billion in state and local government debt.
On a per-capita basis, the state and local debt numbers are even more eye-opening, with states like Hawaii, Delaware and Wyoming having surprisingly large debt loads per resident.
Nationally, state and local government debt amounts to about $18,400 per person. In New York, Connecticut, New Jersey, Illinois and Hawaii, state and local debt exceeds $30,000 a person.
Following them are Massachusetts, California, Alaska, North Dakota, Delaware, Wyoming and Maryland, all of which have state and local liabilities in excess of $20,000 per resident.
Over 40 percent of state and local government debt consists of unfunded pension and healthcare benefits promised to public workers. State and local pension debt amounts to $1.5 trillion, with an additional $1 trillion in healthcare benefits promised to retirees.
The bonds that governments issue to fund infrastructure projects, such as roads and bridges, to build and upgrade schools, and to pay for other programs, represent an additional 33 percent of all state and local debt.
These debts have three negative consequences for taxpayers. First, the annual interest costs and debt payments are starting to crowd out essential services. Many local governments are already being forced to divert funds from taxpayers’ priorities, such as education, policing and transportation, to pay for promised public pension benefits that they haven’t set aside the necessary money for.
Second, as governments struggle to cover rising interest and pension payments, some politicians will seek to raise taxes and fees, placing a growing burden on taxpayers. The scale of tax increases needed to pay for these public pension debts could also hinder economic activity within communities, reducing revenues and further increasing debt woes.
Third, current levels of debt weaken long-term balance sheets, harming the future. Some cities and states haven’t borrowed or spent wisely, so they’ll be looking to borrow more money to modernize their infrastructure, schools and technology in the years ahead. However, today’s debt burden will make borrowing more expensive and potentially raise the interest rates on new bond issuances, costing taxpayers even more.
To address this mountain of debt and restore fiscal stability, state and local governments must sustainably align spending with revenues. In years with a robust economy, governments should use budget surpluses to pay down debt rather than funding new or existing programs.
For mega-infrastructure projects, such as major highway and bridge repair, replacement and expansion, public-private partnerships can be used, allowing the private sector to bear the initial construction costs and any overruns, rather than taxpayers.
Ultimately, the most significant drivers of state and local debt are pensions and retiree healthcare benefits, which must be reformed to ensure they are fully funded and prevent the accrual of debt.
State and local governments have far less ability to keep piling up debt the way the federal government does. The bill is coming due, and cities and states that pay down debt quickly and right-size government will be best positioned for the future.
2 thoughts on “State and Local Governments Are Drowning in Debt – Inside Sources”
From the article:
“Ultimately, the most significant drivers of state and local debt are pensions and retiree healthcare benefits, which must be reformed to ensure they are fully funded and prevent the accrual of debt.”
In the real world of the private sector defined benefit pensions are a thing of the past. Employees in the free market economy have defined contribution (401k) type pension plans where the employer may match some of the employee’s contributions but there are no open-ended promises of large, continuous payouts when the employee retires.
In the public sector, where the taxpayer is viewed as an infinite money source, defined benefit pensions are still the rule. The bureaucrats in government service like to help themselves to generous retirement payouts which frequently include a cost of living escalator clause that increases their retirement payouts each year.
Also, promises of retirement healthcare benefits to government employees are something that employees in the private sector very rarely receive. It would be nice if private sector employees could receive the same lavish retirement benefits as government employees but private sector workers don’t have the luxury of reaching into the deep pockets of the taxpayers (they are, after all, the taxpayers who are footing the bill!) to fund their retirements.
The theft of money by corrupt politicians and the bloated, useless bureaucracy drive endless amounts of debt. Corrupt politicians aren’t happy stealing money already in the Treasury, they also want to steal tomorrow’s money from children that aren’t even born yet. Think about that, why dontcha?
Corrupt politicians, like those that steal $5 million from FEMA, are a cancer on our economy and quality-of-life. Arrest them, convict them and throw them in prison.
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