Vermont lowest in nation as total state debt rises over $4 trillion

The best and the worst

California again trumped other states with a $617 billion debt. California's debt is more than twice the size of New York's state debt, and New York has the second largest total debt burden in the nation. Texas, New Jersey, and Illinois rounded out the top five states with the most debt. Although New York and Texas moved up one and two spots, respectively, the states with the five largest debts remained unchanged from last year's report.

Vermont has the least amount of debt of all fifty states with a $5.8 billion state debt. North Dakota, South Dakota, Wyoming, and Nebraska follow Vermont with the smallest debt burdens in the country.

Overall, total state debt fell slightly when compared to last year's report, from $4.24 trillion to $4.19 trillion. The decrease is attributable to reductions in unemployment trust fund loans and fiscal year budget gap totals. Fiscal year budget gaps alone fell by more than half. The lack of a subsequent, sizable drop in total state debt, however, shows that the cause of state debt is a systemic one requiring far more than annual budget balancing to eliminate.

Unfunded pension liabilities

Market-valued unfunded public pension liabilities make up more than half of all state debt, accounting for $2.8 trillion of the total. These market-valued pension liabilities provide a realistic view of the money owed to public pension systems as a result of years of skipped payments, borrowed funds, and inaccurate discount rate assumptions.

In comparison to market-valued liabilities, traditionally calculated unfunded pension liabilities hide the true enormity of state debt obligations. Unfunded liability figures from the Pew Center on the States rely on much of the same data that states use to continually underfund their pension systems. While market-valued liabilities total $2.8 trillion, the latest traditionally calculated figures total only $760 billion in unfunded pension liabilities. Total state debt using these figures is still over $2 trillion, but a comprehensive view of state debt without accurately assessed public pension liabilities disguises the problem to the tune of as much as $2.1 trillion.

States and other sources have not yet released market value pension liability figures for fiscal year 2011. Therefore, this year's report uses the same market-valued pension liability figures first published in 2010 and used in the previous year's report. Even so, growth in traditionally calculated unfunded pension liability totals indicates that were updated numbers available, aggregate state debt would have continued to increase.

Other causes of state debt

Outstanding debt and other post employment benefit liabilities each contribute approximately $600 billion to total debt. Outstanding debt includes bonds, leases, and other regularly assessed components of primary government debt. Post employment benefits include health care and other non-pension benefit guarantees owed to public employees.

The final two items included in the total state debt calculation are outstanding unemployment trust fund loans and fiscal year 2013 budget gaps. Unemployment trust fund loans represent payments due to the federal government, often to cover rising unemployment costs as a result of the recent economic downturn. The fiscal year 2013 budget gap is the gap between revenues and expenditures in each state's most recent budget year. Both of these figures declined from last year's report; the budget gap total decreased by more than half. However, these totals failed to make a sizable impact on state debt; their totals are dramatically overshadowed by pension liabilities, OPEB liabilities, and outstanding debt.

Taken together, these five figures provide a comprehensive assessment of a state's debt.