By Eric Boehm | Watchdog.org
MINNEAPOLIS – Coast to coast, states are leaving taxpayers on the hook for massive debt payments over the coming decades as state governments continue to abuse their metaphorical credit cards.
A new report released this week says state governments have more than $5.1 trillion in debt, largely because of pension obligations to former and current state employees, which states now lack the assets to pay off. Pension debt accounts for more than $3.9 billion of that total, but the report also includes outstanding bonded debt, unemployment compensation trust fund debt and debt in the form of “other post-employment benefits,” or OPEB, which is closely linked to pensions and includes retired public employees’ health-care costs.
Though the totals vary significantly from state-to-state, it adds up to an average of more than $16,000 of debt for each man, woman and child in the United States.
Given states’ propensity for putting things on their credit cards, it’s those children who probably have the most to worry about.
Bob Williams, president of State Budget Solutions, the fiscally conservative state policy think tank that authored the report, said the trillions of dollars of debt are the result of “broken promises, reckless leadership and fiscal irresponsibility.”
“Millions of Americans who interact with or rely on their state governments each and every day must understand their state’s true fiscal condition,” Williams said. “Unaddressed state debt will take its toll on state budgets as the money once expected to fund education, health care and more will have to be redirected to pay for these broken promises.”
California leads the pack with $778 billion in state debt, mostly as a result of the state’s $584 billion unfunded public pension liability. New York ($388 billion), Texas ($341 billion), Illinois ($321 billion), and Ohio ($321 billion) round out the top-five states with the largest amounts of state debt.
Residents of Alaska ($40,000 per resident) and Hawaii ($33,000) have the highest levels of state debt on a per capita basis, followed by Connecticut ($31,000), Ohio ($28,000) and Illinois ($25,000).
At the other end of the scale, residents of Indiana have the lowest per capita debt, but they would still be on the hook for more than $6,300 per person.
The point of the study is not to suggest that states should — even if they could — send each resident a bill for their part of the debt at the end of the month. But breaking down the burden to an individual level gives an indication of how much money state governments will have to drain out of the economy to pay off their borrowing.
In some ways, it might be better to send a bill to each resident and be done with it. Instead, states generally pay back bonded debt over a 20-year period after each round of borrowing, and interest costs mean taxpayers end up paying even larger amounts.
In Illinois, more than $1.45 billion on this year’s general budget will be used simply to pay interest on the state’s $130 billion in overall debt, largely driven by borrowing to cover pension obligations.
“Every dollar spent on interest is a dollar not spent on some other pressing need,” said Judy Baar Topinka, the state comptroller.
Illinois has been heaping more debt on beleaguered taxpayers. The state has borrowed $16 billion in the past four years, and taxpayers are facing debt service costs of more than $1 billion per year until the 2030s.