Which State Is the Worst Off Because of Debt?


Monday October 5th, 2015   •   Posted by Craig Eyermann at 6:45am PDT   •  

17155511_S Last week, we considered what your share of your state’s debt is. Today, we’re going to find out which state is in the worst situation with respect to its debt!

Before we go any farther, let’s consider what we mean by worst off. While having the largest debt per capita is not a good thing, where debt is concerned, what matters more is the ability of the state to make its debt payments, where the state must set aside a portion of the revenue it collects from the taxes and fees it imposes upon its residents.

That means that the best way to find out which state is the worst off because of its debt is to compare it to its revenue, where we might like to know what percentage of its annual revenue would be fully consumed by its debt if it were to pay it off all at once.

To show that, we’ll once again turn to the same Bloomberg article we previously featured, where they also provided a chart showing how each state, and also defaulting territory Puerto Rico, ranks according to their debt-to-revenue percentages.

state-debt-as-percent-of-revenue-source-bloomberg-moodys

It shouldn’t be much of a surprise to see Puerto Rico at the top of the chart, having over twice the debt-to-revenue ratio of the highest U.S. state in the rankings: Hawaii.

Here, we find that Hawaii is the worst state with respect to its public debt levels, with its total debt consuming the equivalent of 13% of the state’s annual revenues. Hawaii is followed closely by Connecticut and New York at the very top of the list.

What does that mean to you? Well, if any of these states wanted to lower their debt-to-revenue percentage without actually borrowing less, the preferred policy of most politicians seeking to sustain their spending, their most likely course of action to “fix” the problem of having too much debt would be to hike their taxes.

In the case of Puerto Rico, that solution stopped working, so they defaulted. Now, the politicians of that territory are finally having to consider restraining their spending, but even now in default, they keep resisting, hoping they can force their creditors to agree to concessions.

Speaking of which, that particular strategy didn’t turn out so well for Greece when its politicians tried it.




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