These Are the States With the Worst Debt Problems in America

Well, Illinois is in trouble.

Recently the state made news for its imminent junk bond credit rating. Earlier this month, S&P Global Ratings announced that it has downgraded the state's general obligation bonds to BBB- from BBB, and the state's moral obligation-backed debt to BB- from BB. What's more, thanks to a $6 billion budget gap, this very well may not be the end. Per S&P Global:

"The rating actions largely reflect the severe deterioration of Illinois's fiscal condition, a byproduct of its stalemated budget negotiations, now approaching the start of a third fiscal year…

"We also believe that Illinois is now at risk of entering a negative credit spiral, where downgraded credit ratings would trigger contingent demands on state liquidity, further exacerbating its fiscal distress… If lawmakers fail to reach agreement on a budget with provisions designed to reduce the state's structural deficit, it's likely we will again lower the ratings."

The budget situation has gotten pretty bad in Springfield, but at least Illinois isn't alone. According to research from the Pew Charitable Trusts, 17 states have seen long-term liabilities soar as a share of personal income. With S&P's announcement, it's worth taking a look at the ten worst.

10. Massachusetts
10. Massachusetts
.

Debt as a share of personal income: 20.5%

Massachusetts's debt wouldn't be that bad for a larger state. At $33.5 billion, this is by no means unpayable for the home of Boston and wealthy communities like Lexington and Amherst.

Unfortunately for the state, it also has unfunded pension and health care liabilities in the amounts of $28.8 billion and $15.4 billion respectively, and its huge footprint in tax-free higher education won't help with that.

The upshot? It would cost more than a fifth of each resident's personal income to pay off the state's debts and long-term liabilities. Perhaps it's for the best that Boston didn't get the Olympics.

9. Mississippi
9. Mississippi

Debt as a share of personal income: 21.2%

No red state/blue state hating here. Fiscal woes seem to know no voting districts.

Now, it could be worse. On the surface level, Mississippi has a lot of debt relative to its ability to pay, but the numbers themselves just aren't that large. According to Pew's analysis the state only has $5.2 billion in public debt and a mere $690 million in unfunded retiree health care costs.

It is true that Mississippi also has one of the worst ranked health care systems in the country, which may contribute to it having one of the smallest unfunded health care liabilities in the country. Nevertheless, Mississippi's numbers are not objectively bad. It's only as a share of income that this gets tighter.

8. Delaware
8. Delaware

Debt as a share of personal income: 22.1%

So, being the home to nearly every corporation in America isn't working out the best. That's O.K. Delaware may have one of the country's biggest public debt issues, but at least it has the world's most valuable filing cabinets.

Along with South Dakota, Delaware is the case example of what can happen when nationally deregulated markets mix with state-based rule systems. As a financial matter, though the state's real woes start in the doctor's office.

Although the state carries a rather svelte debt burden of $2.3 billion and unfunded pension costs of $1.1 billion, its unfunded health care costs approach $6 billion. That ballooning liability has led the state to its current situation, where each citizen would have to pony up 22 cents on the dollar to pay everything off.

7. Kentucky
7. Kentucky

Debt as a share of personal income: 23.6%

In Delaware, it's health. In Kentucky, it's pensions.

Debt and health care aren't real problems for the Bluegrass State. Unfunded retiree health care costs amount to just 3.1% of personal incomes, at $4.8 billion, while debt is a slightly larger 5.7% and $9.0 billion.

The pensions, though… Unfunded pension liabilities amount to 14.8% as a share of personal income in Kentucky, with $23.5 billion in outstanding liabilities. Fortunately for Kentucky, as with so many states, this is a debt that they can stretch over decades. That's still a lot of money though.

6. New Mexico
6. New Mexico

Debt as a share of personal income: 23.7%

New Mexico is a beautiful state, with much culture, geography and industry to be proud of. Its economy, however, has struggled for some time now.

With personal incomes at roughly four-fifths the national average, and the second worst loan-to-deposit ratio in the country, the economy continues to lag behind much of the nation. Its liabilities follow suit.

New Mexico has more than $11 billion in unfunded pensions and $3.7 billion in upcoming retiree health care costs. Add that to its $2.5 billion in debt, and you can see how the state's liabilities cost nearly a quarter of per capita income.

5. Connecticut
5. Connecticut

Debt as a share of personal income: 30.2%

Connecticut's situation looks even more grim once you consider that it is one of the wealthiest states in the nation.

In terms of raw debt the state holds nearly $20 billion, and another $47.9 in combined pension and retiree costs.

Connecticut is already going through some tough times with Hartford, the state's biggest city, struggling to hold young professionals and major insurance companies pulling out for better talent markets. Now it has to deal with the fact that its debt is nearly a third of personal incomes in a state with one of the highest personal incomes in America.

4. New Jersey
4. New Jersey

Debt as a share of personal income: 31.2%

Over the past few years New Jersey Governor Chris Christie has reached a point of national infamy. From his Bridgegate scandal to his brief run for office and humiliating relationship with Donald Trump, Christie stayed in the national spotlight for quite some time.

It was more than long enough for members of the media to start dredging up the state's finances. What they found was not good.

Far from the balanced budget that Christie often claimed to engineer, New Jersey has some of the highest structural liabilities in the country. The state's debt amounts to $35.5 billion, worth slightly more than 7% as a share of residents' personal income. In pensions and retiree health care the state carries another $117.8 billion, putting it near the top of our list.

3. Illinois
3. Illinois

Debt as a share of personal income: 31.7%

Yes, Illinois is not our leading entry.

Now, that's not to say that the Land of Lincoln is off the hook. The state's structural liabilities are substantial. Unfunded pension liabilities alone come to $101 billion, while debt and retiree health care costs make up almost $90 billion more. And despite economic centers like Chicago and Springfield, the state's heavy rural makeup will make that increasingly hard to pay off.

It is Illinois's operating deficit, the money it needs for day-to-day operations, that has caused its problems with the credit agencies, but make no mistake. These structural issues will come calling too.

2. Hawaii
2. Hawaii

Debt as a share of personal income: 46.1%

America doesn't seem to have a great track record managing islands. Recently Puerto Rico declared bankruptcy in order to avoid $123 billion in unfunded obligations, the largest U.S. holding ever to do so.

Hawaii… Well, if it weren't illegal for states to declare bankruptcy, Hawaii wouldn't seem all that far behind. Structural debt in this state has gotten so high that it would cost nearly half of the residents' income to pay it all off.

The good news (such as it is) is that as a small state, these are relatively small numbers. Debt amounts to a mere $6.6 billion. Unfunded pension and health care plans will cost a little over $22 billion. Not chump change by any means, but certainly better than the $191 billion Illinois owes.

1. Alaska
1. Alaska

Debt as a share of personal income: 52.9%

So, first the good news. Like Hawaii, Alaska's liability numbers are objectively small compared to the rest of the country. Debt only comes to a slim $1.2 billion. Pensions and retiree health care will cost it less than $20 billion.

But, really, $1 may as well be $1 million when you don't have it, which brings us to the bad news.

These numbers may not be big by California or New York standards, but in Alaska they're enormous. Spread across the state's small population, this debt explodes to the point where this is the only state whose debts are worth more than half of what its residents earn.

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