The evolution of State-Local balance sheets in the United States, 1953–2013

Abstract

State and local debt in the United States more than doubled as a share of gross domestic product between 1953 and 2007. Using a historical accounting framework, we find that there is no straightforward relationship over time between state and local deficits and debt growth. We find that only 17 percent of the variation in aggregate state–local debt ratios comes from variation in the fiscal balance. This is especially true in the 1980s, the period of most rapid increase in state–local debt ratios. Before 1980, there were small but persistent deficits, but stable debt ratios. In the 1980s, state and local sectors shifted toward budget surpluses but saw rising debt ratios. This is explained by a faster pace of asset accumulation. Our results demonstrate the autonomy of balance sheet variables and suggest that changing debt ratios cannot be explained by real income and expenditure flows.

Keywords:

• State local debt
• debt dynamics
• pensions
• deficit

Notes

1 Some technical issues involving the Census data are discussed in the appendix.

2 For example, see Brown and Dye (2015).

3 The financial accounts and most other national accounts do not count assets of pension funds (and some other, smaller trust funds) as assets of the sponsoring governments, so report much lower financial assets for state and local governments.

4 It is interesting that despite this, Alaska state government debt is also well above the national median. This is an important reminder that we cannot assume that net and gross positions vary together.

5 For a critical view of the treatment of future pension payment as a current liability, see Rosnick and Baker (2012).