States Drive Up Residents’ Debt Burden, Echoing Federal Spending

The state government of California has accumulated roughly $11,511 of debt for every resident and is now seeking voter approval to issue additional bonds amounting to several more billions, with repayment pushed to future taxpayers. The new debt service would join the roughly $6 billion the state already spends each year to service existing bonds. California, however, does not hold the title of the most debt-ridden state in the country. Per capita, Connecticut and New Jersey carry the heaviest burdens, while Utah has the smallest debt per person. The motives behind these obligations vary, but a heavier load translates into a larger tax bill for residents in the years ahead.

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Per-Person State Debt Often Exceeds Twenty Thousand Dollars

Connecticut and New Jersey are the leaders in per-capita debt, each surpassing $20,000 per resident—$25,381 and $22,933 respectively, 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, with each state carrying more than $17,000 for every resident.

Utah stands out with the lowest per-capita debt, at $1,856, making it the only state under $2,000 per resident. Tennessee, South Dakota, Indiana, and Idaho also report per-capita debt figures under $3,000.

In total terms, state governments nationwide reported $2.6 trillion in debt, with $1.9 trillion of that as long-term debt, by the close of fiscal year 2024. When local governments are included, the overall burden climbs to about $6 trillion in total debt, and close to $5 trillion in long-term obligations.

On a per-capita basis, New York ($37,006 per person), New Jersey ($35,100), Connecticut ($33,189), Illinois ($31,582), and Hawaii ($30,759) carry the highest combined state and local debt, including obligations at the state, county, city, and school district levels within each state, the report notes.

Idaho has the smallest combined per-capita debt burden at $6,228, followed by Indiana, South Dakota, Tennessee, and West Virginia.

In overall dollar terms, California holds the largest total of state and local debt, about $1.06 trillion. Given its large population, this equates to roughly $26,760 per resident, placing California in the eighth position when measured per capita.

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Debt Growth Becomes Routine in Public Finances

There is nothing inherently defective about debt when it finances large, one-off projects such as infrastructure and when repayments do not overburden taxpayers. The problem arises when debt is used to fund ongoing policies—such as affordable housing programs and persistent immunology research—as highlighted in California’s bond proposals for 2026. Such use suggests debt has become a standard funding mechanism and is likely to accumulate year after year.

California is among the states where high-cost policy agendas consistently outpaced available resources. Rather than scaling back ambitions, officials have turned to annual borrowing to cover 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 chronic…even as the state’s economy and revenues have grown, underscoring that the problem is structural rather than cyclical.”

While California’s challenges are substantial, it is far from alone in facing rising debt burdens, often a consequence of financial practices aimed at satisfying short-term desires at the expense of long-term responsibility.

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Public Pensions Have Only Partial Funding in Some States

“The $5 trillion of long-term debt held by state and local governments comprises bonds, loans, and notes (42%), unfunded pension liabilities (32%), unfunded retiree health care (19%), accrued leave payouts/compensated absences (2%), and other (5%),” explains the Reason Foundation report. “States with the highest per-capita long-term debt across state and local governments include 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 pain point for U.S. state governments and their taxpayers—Illinois is in the weakest condition, with only about 52 percent funded. By contrast, Tennessee stands at 104.2 percent funding. The national median funding ratio is around 78 percent, and state pension plans collectively carry about $1.29 trillion in unfunded liabilities.

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Many Balanced-Budget Rules, Yet Few Budgets End Up Balanced

It’s worth recognizing that the spendthrift tendencies of politicians are not new, and most states have attempted to curb such behavior through statutes or constitutions. All states except Vermont require at least some effort to balance budgets annually. Nevertheless, officeholders can be quite inventive in sidestepping mandates that limit spending to what is collected.

California isn’t singled out for criticism, but public data show particularly problematic conduct by some of its lawmakers. In the Golden State, courts have ruled that a budget complies with the state constitution as long as expenditures do not 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,” notes Capitol Weekly’s attorney Chris Micheli. “The Legislature can declare a ‘balanced budget’ based on its belief that federal funds or new revenues will arrive, even though there is no guarantee of receipt.”

It is relatively easy to satisfy balanced-budget requirements while still spending more than tax receipts if one is free to conjure up numbers from thin air.

Again, borrowing and debt can function as reasonable financial instruments when used wisely for major projects and unforeseen emergencies. But for many states—and likewise for the federal government—spending far beyond what can be afforded has become a standard practice.