Which States Have the Least Amount of Debt?

State debt represents the financial obligations a state government owes to its creditors and employees. Understanding these commitments is important for evaluating a state’s fiscal health and its ability to provide public services. The level of debt influences a state’s credit rating, affecting borrowing costs and potentially impacting taxpayers through service changes or future tax burdens.

Understanding State Debt

State debt encompasses various financial obligations incurred by a state government. A primary category is bonded debt, including general obligation (GO) bonds and revenue bonds. General obligation bonds are backed by the state’s general taxing power, funding non-revenue-generating projects like public schools or roads.

Revenue bonds are repaid from specific revenue streams generated by the projects they finance, such as tolls or utility fees. Their repayment relies on the project’s success, not the state’s broader taxing authority. States issue these bonds to finance significant capital improvements and infrastructure projects.

Beyond bonded debt, states also carry unfunded liabilities, primarily public employee pension plans and Other Post-Employment Benefits (OPEB), like retiree healthcare. These represent future benefit promises for which assets have not been set aside. While not traditional debt, these obligations are substantial claims on future state revenues and are part of a state’s overall fiscal burden.

Key Metrics for Assessing State Debt

Financial analysts and rating agencies use several metrics to assess state debt levels. Debt per capita, calculated by dividing total debt by population, indicates the individual share for each resident. This metric provides a simple way to understand the burden relative to the population.

Debt as a percentage of Gross State Product (GSP) or personal income is another metric. These ratios relate a state’s debt to its economic output or residents’ income, offering a more nuanced view of affordability. A higher percentage suggests a greater burden relative to the state’s capacity to generate revenue. Debt service ratios measure the portion of a state’s annual budget dedicated to principal and interest payments.

Including unfunded liabilities is important for a comprehensive assessment of a state’s fiscal health. Organizations often combine bonded debt with unfunded pension and OPEB obligations to calculate total long-term liabilities. Evaluating these combined figures against economic indicators provides a clearer picture of a state’s complete fiscal burden and its ability to meet financial commitments.

States with Lower Debt Burdens

Several states consistently demonstrate lower overall debt burdens when considering bonded debt and unfunded liabilities. Nebraska, for instance, has been noted for its minimal fiscal obligations, appearing “near zero for all three types” of liability—debt, unfunded pensions, and OPEB—as a percentage of its Gross State Product (GSP). The state also maintained one of the highest ratios of funded pension plans in 2024. Nebraska’s debt as a percentage of its own-source revenue has been reported as significantly low, around 0.4%.

Idaho also stands out with a low debt profile. Recent data indicates Idaho has among the lowest per capita government debt, approximately $3,107.52 per person, accounting for about 5.43% of its total GSP. The state’s total liabilities, including bonded debt, unfunded pensions, and OPEB, have been observed to be less than 3% of its GSP. Its pension plan savings have also exceeded its owed amounts, contributing to its strong financial standing.

Wyoming consistently ranks among states with the least amount of debt. It has shown low liabilities as a percentage of GSP, including all forms of debt and unfunded obligations. Wyoming’s debt as a share of its own-source revenue was reported as very low, less than 0.1%. The state also received an “A” grade from Truth in Accounting in 2023, reflecting a taxpayer surplus. These states often benefit from specific fiscal approaches that contribute to their prudent debt management.

Factors Influencing State Debt Levels

A state’s debt levels are shaped by policy choices and economic conditions. Fiscal conservatism and prudent spending habits play a role, as states with balanced budgets and strict spending controls incur less debt. Many states implement legal or constitutional limitations on debt issuance, restricting borrowing and encouraging reliance on current revenues.

The strength and diversity of a state’s tax base also impact its need for borrowing. States with robust and stable revenue streams, from diverse industries or a growing economy, are less likely to rely on debt. A broad tax base provides consistent funding, reducing the necessity to issue bonds or defer expenses. Economic development and population growth can further enhance fiscal health by expanding the tax base.

Effective pension funding practices are another determinant of a state’s overall debt burden. States that consistently make adequate contributions to their public employee pension systems avoid large unfunded liabilities. Underfunded pension systems can create hidden debt that impacts long-term financial stability. A preference for “pay-as-you-go” financing, funding projects directly from current revenues, reduces long-term debt and interest costs.