State governments commonly issue debt to finance the construction of roads, schools, and other investments in infrastructure that are important for economic growth and competitiveness. While borrowing funds can facilitate these investments, there is also a danger in allowing debt to grow unchecked. If debt service is too high, it can crowd out other public spending or else necessitate burdensome taxes or fees. Policymakers thus must carefully balance a state's capital needs with efforts to keep debt levels affordable.
This report highlights some considerations faced by policymakers or analysts when gauging state debt affordability, including how to define state debt and which metrics and approaches to use to assess state debt burdens. The report, which uses illustrative data from the New England states, concludes with recommendations to help guide future affordability assessments. These include improving transparency surrounding the various forms of state debt, examining alternative definitions of debt and multiple debt burden ratios, and timing affordability analyses to inform capital planning.
Walking a Tightrope: Are U.S. State and Local Governments on a Fiscally Sustainable Path?
by Bo Zhao and David Coyne
Research Department Working Paper 13-18
A Guide to State Debt Affordability Studies: Common Elements and Best Practices
NEPPC Policy Brief 13-3
Securitizing Tobacco Settlements
E. Matthew Quigley
Fiscal Facts, Winter 2003
Are State Government Debt Levels Too High?
Daniel G. Swaine and Robert Tannenwald
Fiscal Facts, Fall 1997
Appendix: Selected Debt Ratios for 50 States
Assessing the Affordability of State Debt
by Jennifer Weiner
Webcast Presentation (January 29, 2014)