State Budgets

Report Reveals Aggregate State Debt Exceeds $4 Trillion

State Budget Solutions’ (SBS) second annual state deficit report reveals aggregate state debt presently exceeds $4 trillion.

How the States Fared

The states with the largest total deficits include California, New York, Texas, New Jersey, and Illinois, respectively. California hit the bottom of the list with a deficit of more than $612 billion.  The same states made the bottom of list last year, too.

Despite the high state debt levels, Vermont, North Dakota, South Dakota, Nebraska and Wyoming maintained positions at the very top of the list this year. Many of these states at the top of the list ranked very well across the board.

In predicting states’ future economic performance, New York, Vermont, Maine, California, and Hawaii scored the lowest in the rankings. The states on the other end of the list include Utah, South Dakota, Virginia, Wyoming, and Idaho. The rankings are based upon economic data examined over the past 10 years to forecast future performance.


Although states themselves present deficit figures, those amounts do not offer a full picture of the state’s liabilities and can rely on budget gimmicks and accounting games to hide the extent of the deficit.  SBS takes a straightforward approach to calculating total state debt, defining it as the sum of outstanding official debt, pension and other post-employment benefits (OPEB) liabilities, Unemployment Trust Fund loans, and current budget gap. While liabilities are not actually debt, they are a stream of future spending obligations that states have committed themselves to spending.

SBS calculated the total official liabilities for each state according to the latest comprehensive annual data available. The research also looks at the overall financial landscape for each state by considering top income tax rates, past economic performance, and economic outlook.

Comparison of Liabilities

Pensions and OPEB play a crucial role in straining state budgets. Minimum unfunded liabilities total more than $3.4 trillion right now. This year, SBS incorporated state pension liability figures computed by Andrew Biggs from the American Enterprise Institute (AEI) in addition to data from the Pew Institute, which were included in last year’s state deficit study.

The SBS “Just How Big are Public Pension Liabilities?” report explains how pension liabilities are calculated by states according to accounting rules different from the private sector. States are, for example, allowed to assume high rates of return without taking into regard the associated high risk. The AEI figures estimate how large public pension liabilities would be if states used private sector market-valuation methods.  Pew warns that its estimates are low, so the AEI numbers are preferable in estimating the true value of state debts.

Public pension liabilities stand at more than $2.8 trillion using AEI figures. With the Pew pension liability numbers, the figures stand at $656 billion, up from $452 billion last year.

According to AEI’s numbers, total state debt for this year is more than $4 trillion. The total is more than $2 trillion utilizing Pew’s pension liabilities, still up from $1.8 trillion last year.


Income tax rates were obtained from the Federation of Tax Administrators, and state rankings for past economic performance and future economic outlook are from the American Legislative Exchange Council’s 2011 report “Rich States, Poor States.”

Outstanding debt and outstanding debt per capita were obtained from each state’s most recent Comprehensive Annual Financial Report (CAFR), which can lag current data by one to three years. Pension numbers for this year were obtained from AEI’s “The Market Value of Public-Sector Pension Deficits.”  A separate calculation was done using Pew’s “The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Costs” report on pension funds as of 2009. OPEB liabilities were also found in this year’s Pew report as well. Pension numbers from last year were from Pew’s “The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reforms” report on pension funds as of 2008. Unemployment Trust Fund Loans were from the National Council of State Legislators, and current budget shortfalls are from the Center on Budget and Policy Priorities.

The spreadsheet linked to below has been corrected to reveal the proper state rankings for Outstanding Debt, found in Column I. There was an error in the sorting of the column, not in the amounts of debt.

View the data here.

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