Yes, nearly all states carry some form of debt, but the level, purpose, and risk of that state debt vary widely across the country.
Searchers who ask “are all states in debt?” often want to know if any state has managed to escape borrowing altogether. The short answer is that modern state governments almost always carry some obligations, from bonds for highways to long term pension promises for public workers. What changes from place to place is how large those debts are compared with the state economy and how clearly leaders plan to pay them back.
This article explains how state debt works, why states borrow even when balanced budget rules exist, and what current data say about which states lean on debt more than others. You will also see simple steps that help you read your own state’s financial picture without needing a finance degree.
Are All States In Debt? Big Picture View
When people hear about the national debt, they sometimes assume that state debt follows the same pattern. In reality, state finances run under different rules. Many states must pass balanced operating budgets, yet still issue bonds or carry pension and retiree health obligations that count as debt.
So is state debt truly universal? If you look only at traditional bonds and loans, a small number of states keep those totals low at any given time. Once you add in unfunded pensions and retiree health promises, data show that every state carries some form of long term obligation on its books.
Debt in this context does not always mean reckless overspending. A state can hold bonds for projects that serve residents for decades and still keep overall debt at a manageable level. The key questions are why the money was borrowed, how steady the repayment plan looks, and how big the total is compared with tax revenue and the size of the state economy.
Common Types Of State Debt
State obligations fall into several broad buckets. Understanding these categories helps you see what headlines about rising or falling state debt really describe.
| Debt Type | What It Covers | Typical Use |
|---|---|---|
| General Obligation Bonds | Bonds backed by the full faith and credit of the state | Long term projects like highways, schools, and public buildings |
| Revenue Bonds | Repaid from a dedicated stream such as tolls or fees | Bridges, transit systems, utilities, and student loan agencies |
| Short Term Notes | Borrowing that matures in one year or less | Cash flow during the year before tax payments arrive |
| Pension Obligations | Promises to pay later retirement benefits to workers | Defined benefit plans for teachers, police, and other staff |
| Retiree Health Obligations | Later health coverage costs for retired employees | Subsidized medical plans after workers leave active duty |
| Leases And Public Private Deals | Long term lease payments and availability payments | Courthouses, prisons, and other facilities built by private partners |
| Local Government Debt Under State Umbrella | Debt that state authorities issue on behalf of cities or districts | School construction, water systems, and housing programs |
Debt Versus Deficit For State Budgets
It helps to separate the idea of a deficit from the broader question of whether a state is in debt. A deficit happens when yearly spending exceeds yearly revenue. Debt is the pile of past borrowing that has not yet been repaid. A state can have no deficit in a given year and still carry billions of dollars in outstanding bonds and pension promises.
Many state constitutions or statutes require lawmakers to balance the operating budget each year. Those rules still allow borrowing for capital projects and long term benefits. That is why a state may claim a balanced budget while also reporting growing retirement obligations in financial reports.
Why States Borrow In The First Place
Once you know that nearly all states carry some form of debt, the natural next question is why they borrow at all. In practice, borrowing lets states match the cost of major assets and long lived benefits with the residents who will use them over time.
Building Roads, Schools, And Infrastructure
Big public works rarely fit inside a single year’s budget. Issuing bonds spreads the cost of a bridge or university campus over twenty or thirty years, which lines up with how long residents gain value from those assets. According to U.S. Census state finance data, long term debt statistics focus on these kinds of projects and track how much remains outstanding at the end of each fiscal year.
This approach can reduce pressure to slash other services just to pay for one project. The tradeoff is that interest payments come due every year, so lawmakers need to plan for those costs when they set tax rates and spending priorities.
Managing Cash Flow And Shocks
State revenue often swings throughout the year. Sales tax spikes during holiday seasons, income tax arrives around filing dates, and federal grants come in batches. Short term notes and lines of credit can smooth those swings so that payroll and core services stay on track even when cash receipts are uneven.
States also face natural disasters, public health events, and sudden swings in commodity prices. In those moments, borrowing can help close gaps until aid arrives or the economy settles. States with deeper reserves have more room to handle those shocks without new debt, while states that enter a downturn with thin savings often add to their obligations.
Funding Pensions And Benefits
Retirement systems work best when contributions and investment returns grow steadily over decades. When states fall behind on contributions, the gap between promised benefits and assets turns into unfunded liability. Recent work by The Pew Charitable Trusts shows that combined unfunded pension and retiree health obligations across the fifty states reach well over a trillion dollars.
Some states issue pension obligation bonds in an attempt to close that gap. They borrow at one interest rate and invest the proceeds, hoping that investment returns exceed borrowing costs. This strategy carries risk, since market downturns can leave the state with higher debt and little improvement in plan health.
How Much Debt Do States Carry Right Now
Headline numbers about state debt usually bundle several pieces together. Analysts look at bonded debt from past capital projects, short term notes, and unfunded retirement obligations. They then compare those totals with state gross domestic product, tax revenue, or population to see how heavy the load looks.
Recent surveys of state bond debt alone show hundreds of billions of dollars in outstanding obligations across the country. At the same time, unfunded pensions and retiree health care promises add another multi trillion dollar layer to the total picture for states taken together. That combined figure helps explain why this question keeps coming up in public debate.
Not every state stands in the same position. Some, such as Tennessee and Utah, have kept bond debt per resident low and raised funding for retirement plans. Others, including states like Illinois, New Jersey, and Connecticut, report far higher levels of bonded debt and unfunded promises compared with their own revenue. The mix changes over time as economies grow, tax policy shifts, and legislatures change course on saving or borrowing.
States With Higher And Lower Debt Levels
State debt patterns fall along a spectrum rather than a simple yes or no line. Looking at a few examples shows how policy choices and economic history shape those patterns.
States That Carry Heavier Debt Loads
States with older infrastructure networks, large transit systems, or long histories of underfunded pensions tend to show higher debt ratios. California, New York, and Illinois often appear near the top of lists that rank total liabilities, including both bonds and retirement promises. Large populations and diverse economies give these states a wide tax base, yet long standing commitments still weigh on their balance sheets.
High debt does not automatically mean default risk, but it does narrow choices when recessions hit. Leaders in these states must think carefully about tradeoffs between raising taxes, trimming services, or adjusting benefits for later workers. Investors watch how those debates unfold, since credit ratings depend on the mix of debt levels, reserves, and political willingness to tackle structural gaps.
States That Keep Debt Levels Low
On the other end, some states follow a more cautious line on borrowing. Places such as Tennessee, Utah, and Wyoming have posted low bond debt per resident in recent comparisons, and several have worked steadily to raise pension funding levels. Strong legal limits on debt issuance, along with habits of building rainy day funds during growth years, help keep overall obligations smaller.
Low debt does not remove every challenge. States with smaller populations or narrow industrial bases can still face revenue swings when a single sector slows. Even so, starting from a lower debt level gives these states more room to respond with targeted borrowing when needed.
Examples Of Higher And Lower Debt Profiles
The table below gives a simple snapshot of how different state profiles might look. It does not rank every state, but it shows common traits that shape whether a state sits on the higher or lower end of the debt spectrum.
| State Debt Profile | Typical Traits | Common Tradeoffs |
|---|---|---|
| High Total Liabilities | Large legacy pension gaps, major transit and infrastructure systems, slower pension reform | Pressure for tax increases, service cuts, or benefit changes during downturns |
| Moderate Debt With Strong Growth | Growing tax base, steady bond program for projects, improving pension funding | Room to borrow for new projects but need for discipline as population and demands rise |
| Low Bond Debt, Rising Retirement Costs | Strict limits on borrowing, but pension and retiree health plans still underfunded | Budget strain from growing benefit payments even without large bond totals |
| Low Overall Debt And Strong Reserves | Small bond program, solid pension funding, sizable rainy day funds | Debate over whether to cut taxes, boost services, or keep building savings |
| Resource Dependent States | Revenue tied to oil, gas, or minerals, with boom and bust cycles | Need for strict saving rules during booms to avoid heavy borrowing in bust years |
Does State Debt Always Spell Trouble?
Not all debt is created equal. Borrowing to build a bridge that will serve drivers for fifty years has a different flavor than borrowing to cover routine payroll. The first spreads the cost of a long lived asset over time. The second can point to deeper structural gaps if it happens year after year.
Analysts watch several warning signs. Rapid growth in debt compared with state revenue, shrinking reserves, repeated use of one time fixes, and pension contribution holidays can point to rising stress. Credit rating agencies weigh these factors when they assign grades that influence how much interest states pay on new bonds.
Residents feel the results in concrete ways. Heavy debt loads can crowd out money for schools or roads, since interest and required pension payments come first. On the flip side, well managed borrowing can keep infrastructure modern and maintain steady service levels without sudden tax spikes.
How To Check Your State’s Debt Health
Voters and taxpayers do not need advanced training to get a clearer picture of their state’s finances. A few regular habits make the numbers easier to follow and put headlines about state debt in context.
Simple Steps For Curious Residents
- Read the latest annual financial report or summary report from your state controller or treasurer, paying special attention to sections on bonded debt and retirement plans.
- Look for trends in total liabilities and net position over at least five years rather than focusing on a single year’s change.
- Check how large pension and retiree health obligations look compared with state revenue and gross domestic product.
- Compare your state with neighbors using nonpartisan dashboards that track state debt, pensions, and reserves across all fifty states.
- Follow debates in your legislature over borrowing plans, tax policy, and contributions to retirement systems, since those choices shape later debt levels.
When you follow these steps, the question “are all states in debt?” starts to feel less like a mystery and more like a set of numbers that you can track over time. Most states will continue to borrow for big projects and to meet retirement promises, yet the scale and risk of that borrowing depend on daily choices made by officials and voters.
Putting State Debt In Perspective
State debt sits between two poles. On one side, some observers fear that any borrowing will drag down later generations. On the other side, some argue that modern infrastructure and stable public services would be impossible without bonds and long term commitments. The truth for most states lies between those extremes.
Almost every state carries debt, but the mix of projects, retirement promises, reserves, and tax policy shapes whether that debt feels heavy or manageable. By paying attention to how much your state borrows, why it borrows, and how it plans to repay those obligations, you can judge whether leaders are treating debt as a tool or sliding toward later stress.