A comprehensive report by the Reason Foundation reveals a staggering $6.1 trillion in debt held by U.S. state and local governments as of late 2023, averaging approximately $18,400 per American. This substantial financial burden, composed largely of long-term obligations like unfunded pensions and retiree healthcare, underscores persistent fiscal challenges that extend far beyond the national debt and demand immediate attention.
While national debt often dominates headlines, a recent in-depth analysis from the Reason Foundation’s Financial Transparency Project sheds light on an equally critical, yet often overlooked, fiscal challenge: the massive debt accumulated by state and local governments across the United States. As of the end of 2023, this combined debt reached an astounding $6.1 trillion, an amount that translates to roughly $18,400 for every American citizen.
This colossal sum, detailed in a report by Mariana Trujillo and published on October 23, 2025, exists in addition to the over $38 trillion national debt, presenting a complex web of financial obligations that demand scrutiny. For the interested citizen, understanding the nature and distribution of this debt is crucial for grasping the fiscal health of their communities and the nation as a whole.
Who Holds the Debt? A Closer Look at Government Tiers
The $6.1 trillion total debt is distributed among various levels of state and local governance, revealing where the largest burdens lie:
- State governments are responsible for the largest share, holding $2.66 trillion.
- Municipalities follow with $1.4 trillion in debt.
- School districts account for $1.27 trillion.
- Counties carry $757 billion.
This breakdown highlights that fiscal responsibilities are heavily weighted towards state-level entities, but local governments and educational bodies also contribute significantly to the overall picture.
The Debt Landscape: Top States by Aggregate and Per Capita Burden
Unsurprisingly, some of the nation’s most populous states shoulder the largest aggregate debt figures. California leads the country with over $1 trillion in state and local government debt, a figure that dwarfs all others. Following California are:
- New York: $798 billion
- Texas: $550 billion
- Illinois: $407 billion
- New Jersey: $310 billion
- Florida: $242 billion
In total, 16 states reported more than $100 billion in state and local debt, and 27 states exceeded $50 billion. Only Vermont ($8.8 billion) and South Dakota ($5.9 billion) had less than $10 billion in combined state and local liabilities.
Per Capita Debt: A Different Perspective
While aggregate numbers are important, examining debt on a per capita basis provides a clearer picture of the burden on individual residents. New York, despite being second in total debt, ranks first per capita with an astonishing $39,491 per resident, more than double the national average of approximately $18,400. Other states facing significant per capita burdens include:
- Connecticut: $34,592 per resident
- New Jersey: $33,338 per resident
- Illinois: $31,783 per resident
- Hawaii: $30,399 per resident
Conversely, states like Idaho, Indiana, South Dakota, Tennessee, and Oklahoma boast the lowest per capita debt, each with less than $7,500 per resident, showcasing significant variation in fiscal management across the nation.
The Components of Debt: Long-Term Obligations Dominate
The vast majority of state and local government debt—roughly 80%—is comprised of long-term obligations, which are liabilities due in more than a year. Nationally, this amounted to $4.9 trillion at the end of 2023, or approximately $14,700 per person. These long-term obligations are critical to understand as they represent commitments stretching decades into the future.
The primary components of this long-term debt include:
- Bonds, loans, and notes: 41% of the total long-term debt.
- Unfunded public pension liabilities: 32% of the total long-term debt.
- Unfunded retiree health care benefits (OPEB): 20% of the total long-term debt.
- Accrued leave payouts: 2% of the total long-term debt.
The Reason Foundation’s analysis, which you can explore in full detail on their official website, highlights these unfunded liabilities as particularly challenging because they often represent promises made without sufficient assets set aside.
The Looming Shadow of Pension Debt
Unfunded public employee retirement liabilities, commonly known as public pension debt, arise when governments fail to adequately fund promised benefits. This category alone constitutes $1.5 trillion of the national state and local debt, averaging $4,600 per American.
- California holds the largest aggregate pension debt at $269 billion.
- Illinois follows closely with $228 billion.
- Other states with substantial pension debt exceeding $60 billion include New Jersey ($98 billion), Texas ($96 billion), Pennsylvania ($70 billion), New York ($63 billion), and Florida ($62 billion).
On a per capita basis, Illinois faces the most severe pension burden at $17,786 per resident, followed by Connecticut ($12,997) and New Jersey ($10,601). Notably, Washington and South Dakota reported no public pension debt in 2023, demonstrating that effective management is possible.
The Unfunded Crisis of Retiree Health Care (OPEB)
Other Post-Employment Benefits (OPEB) primarily cover unfunded retiree health care promises. Unlike pensions, these obligations are largely unfunded by most governments. Nationally, OPEB debt stands at $958 billion, making up 20% of long-term liabilities, or about $2,900 per American.
- New York carries the largest share, with $303 billion in OPEB debt, representing about one-third of the national total.
- California is second with over $147 billion.
- New Jersey ($98 billion) and Texas ($77 billion) also have significant OPEB liabilities.
Per capita, New York again leads with $15,017 per resident, trailed by New Jersey ($10,599), Delaware ($8,448), Connecticut ($6,657), and Massachusetts ($6,308).
Bonded Debt: Explicit Borrowings
The more traditional form of government debt, outstanding bonds, loans, and notes, represents explicit contractual obligations with fixed repayment schedules. This category accounts for $2 trillion nationally, or 41% of long-term liabilities, equating to $6,100 per resident.
- California has the largest stock of bonded debt at $334 billion.
- Texas owes $287 billion.
- New York ($197 billion), Illinois ($98 billion), and Florida ($81 billion) also rank highly.
In per capita terms, Hawaii leads with $14,295 per resident, followed by Connecticut and Massachusetts (both over $10,000 per resident).
The Broader Fiscal Context: Insights from Truth in Accounting
The Reason Foundation’s report, a robust analysis of financial reports from all 50 state governments, over 2,000 county governments, 8,000 municipal governments, and 10,000 school districts, provides a critical benchmark for fiscal transparency. The data primarily covers the 2023 fiscal year, with 2022 data used where 2023 information was unavailable.
This comprehensive approach aligns with the work of other organizations dedicated to governmental fiscal health. For instance, the Chicago-based non-profit Truth in Accounting (TIA) has been publishing similar reports for nearly two decades. TIA’s 16th annual Financial State of the States report for fiscal 2024 revealed that 25 states were unable to cover all their financial obligations. TIA emphasized that “half of U.S. states are carrying significant debt burdens, driven by rising costs, inflation, and ongoing pressure on budgets to fund promised pension benefits.” They noted that with COVID-related federal funding tapering off, states might face increased difficulty managing these budget pressures without additional financial support.
TIA’s analysis further indicated that for fiscal 2024, all 50 states combined had $2.2 trillion in assets against $2.9 trillion in total debt, implying a collective need for over $765 billion to cover their expenses, a figure reported by The Center Square. This corroboration underscores the widespread nature of the fiscal challenges highlighted by the Reason Foundation.
What This Means for Citizens and the Future
The substantial state and local debt figures are not merely abstract numbers; they have tangible implications for every American. High debt levels can lead to:
- Increased taxes and fees to fund existing obligations.
- Cuts to essential public services like education, infrastructure, and public safety.
- Reduced flexibility for future investments in growth and innovation.
- A burden on future generations who will inherit these liabilities.
The prominence of unfunded pension and OPEB liabilities suggests a long-term structural problem where current expenditures are not adequately covered by current revenues, deferring costs to the future. As residents, understanding these financial realities empowers us to demand greater fiscal responsibility and transparency from our elected officials, fostering more sustainable financial practices for our communities.
