State Governments Burden Residents With Growing Debt Just Like the Feds

Spending more than one can afford is business as usual for state officeholders.

California's state government, which has run up $11,511 in debt per resident, is asking voters to approve more billions of dollars in bonds, to be paid back by taxpayers at a later date. The cost of carrying that extra debt will be added to the roughly $6 billion the state pays each year to service bonds issued in the past. But the Golden State isn't the most debt-burdened state in the country. Connecticut and New Jersey are the most heavily burdened per capita, while Utah carries the least debt per person. The reasons for running up those obligations vary, but the heavier the load, the more taxpayers will have to carry in the years to come.

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Taxpayers Owe Tens of Thousands of Dollars Each in Many States

"Connecticut ($25,381 per capita) and New Jersey ($22,933) are the two state governments with more than $20,000 in debt per capita," according to this year's State and Local Government Finance Report from the Reason Foundation, which publishes Reason. "Hawaii ($19,553 per capita), Illinois ($17,859), Massachusetts ($17,536), and Delaware ($17,445) rank third through sixth in per-capita debt, each with more than $17,000 in debt per state resident."

"Utah, with $1,856 in per-capita debt, is the only state government in the nation with per-capita debt under $2,000," the report adds. Tennessee, South Dakota, Indiana, and Idaho also come in at under $3,000 in debt per state resident.

Overall, state governments around the U.S. reported $2.6 trillion in total debt and $1.9 trillion in long-term debt as of the end of fiscal year 2024. When local governments are added in, the total burden rises to $6 trillion in total debt and nearly $5 trillion in long-term debt.

"In per capita terms, New York ($37,006 per capita), New Jersey ($35,100), Connecticut ($33,189), Illinois ($31,582) and Hawaii ($30,759) have the highest total state and local debt, which includes debt at the state, county, city and school district levels within each state," notes the report.

At $6,228, Idaho has the lowest combined state and local per-capita debt burden, followed by Indiana, South Dakota, Tennessee, and West Virginia.

In terms of overall dollar owed, California has the most combined debt in the nation at $1.06 trillion in state and local debt. Given the large size of the state's population, that works out to $26,760 per resident, putting the state in eighth place.

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When Rising Debt Becomes Business as Usual

There's nothing inherently wrong with debt when it's used to finance large one-off projects over time, like infrastructure, and when it doesn't rise to the level of an insurmountable burden on a state's taxpayers. But when it's used to pay for ongoing policies—such as affordable housing and immunology research, as addressed in California's 2026 bond proposals—that's a troubling indication that debt has become part of the regular funding process in a state and is likely to accumulate year after year.

California is among the states where very expensive political programs have consistently outstripped financial resources. Politicians have responded not by moderating their ambitions, but by borrowing money on an annual basis to pay for their wish lists.

"Both our office and the administration expect the state to face multiyear deficits, with estimates ranging from $20 billion to $35 billion annually," California's Legislative Analyst's Office warned in its overview of the governor's 2026-2027 budget. "After four years of projected deficits and a cumulative total of $125 billion in budget problems solved so far, the state's negative fiscal situation is now chronic…even as the state's economy and revenues have grown, underscoring that the problem is structural rather than cyclical."

While the scope of its problems is substantial, California is far from the only state to face rising debt burdens, often as the result of bad financial practices intended to satisfy short-term wants at the expense of long-term responsibility.

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Some States Have Only Funded Half of Public Pension Liabilities

"The $5 trillion of long-term debt of state and local government consists of bonds, loans, and notes (42%), unfunded pension liabilities (32%), unfunded retiree health care (19%), accrued leave payouts/compensated absences (2%), and other (5%)," comments the Reason Foundation report. "The states with the highest per-capita long-term debt across their state and local governments are New Jersey ($32,794), Connecticut ($29,840), New York ($29,430), Illinois ($27,688), and Hawaii ($26,336)."

When it comes to public pension liabilities—a major source of pain for U.S. state governments and their taxpayers—Illinois is in the worst shape, with only 52 percent funding. At 104.2 percent funding, Tennessee is in the best condition. The median funding ratio for states is 78 percent, with state pension plans overall having $1.29 trillion in unfunded liabilities.

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Lots of Balanced-Budget Requirements, but Few Budgets Are Balanced

It's worth noting that the spendthrift habits of politicians are not new phenomena, and most states have tried to rein-in bad behavior by law or through their constitutions. All states but Vermont require at least some effort to balance budgets every year. But officeholders can be very creative in working around mandates that they spend no more than they collect.

Not to pick on California, but data on the state is widely available and some of its politicians' conduct is particularly egregious. In the Golden State, the courts have ruled that the budget complies with the state constitution if expenditures don't exceed estimated revenues.

"So, the Legislature sets forth its revenue estimate in the annual state budget bill and that estimate will essentially not be subject to review by a constitutional officer or a court," according to Capitol Weekly's Chris Micheli, an attorney. "The Legislature can adopt a 'balanced budget' based upon its determination that federal funds or new revenues are forthcoming, even though there is no guarantee of receipt of those funds."

It's easy to comply with balanced budget requirements while also spending more than you collect in taxes if you are free to make up numbers from thin air.

Again, borrowing and debt can be perfectly reasonable financial tools when used wisely to pay for big projects and unexpected emergencies. But for many states, as with the federal government, spending far more than can be afforded has become a matter of course.