WASHINGTON – The amount of aggregate tax-supported debt outstanding among states declined in fiscal 2015, according to a report released this week by S&P Global Ratings.
In its "Debt Levels Flatline As U.S. States Prioritize Budget Management Over Investment" report released this week, S&P said that 24 states saw their tax-supported debt decline in fiscal 2015, contributing to a 1.04% overall drop in debt balances compared with 2014.
Analysts attributed the slippage to longstanding fiscal stress, states' efforts at budget management and the increased use of debt affordability policies and guidelines.
"In some states, sluggish economic and revenue growth has limited bonding capacity," said Gabriel Petek, a credit analyst for S&P. "But even where legal debt limits aren't a constraint, still-lean fiscal margins have contributed to a general reluctance on the part of many states to add new spending commitments despite low interest rates."
Flat trends in aggregate debt balances in recent years are a reflection of the "muted pace" of economic growth, S&P said, adding that it is characteristic to see limited debt authorization and issuance during slow growth periods.
Tax-supported debt balances declined the most in California at $3.7 billion, followed by Illinois at $2.1 billion, New York at $1.4 billion, and Michigan at $898 million.
California's debt level has been in decline since fiscal 2011, and its debt service ratios have also declined since fiscal 2012, according to S&P.
Conversely, the debt balance increased the most in Pennsylvania at $1.5 billion, followed by Texas at $923 million, Connecticut at $893 million, Virginia at $648 million, and Ohio at $599 million.
Despite the slight decline in debt outstanding, debt-to-gross domestic product and debt-to-personal income increased in fiscal 2015.
Per capita debt and debt service as a portion of governmental expenditures also increased slightly in fiscal 2015, despite the decline in states' aggregate debt balances, S&P said. State debt rankings by ratio were similar in fiscal 2015 as they were the prior fiscal year, it said.
The report ranked states by their total tax-supported debt as well as debt service as a percentage of personal income; general spending and gross state product.
Connecticut, Massachusetts and Hawaii had both the highest per capita debt ratios and the highest debt burdens in fiscal 2015; Wyoming, Nebraska and North Dakota had the lowest per capita debt ratios and lowest debt burdens. S&P said these rankings remained unchanged from 2014.
S&P officials also cited states' infrastructure efforts, including ongoing spending to maintain and operate roads or facilities, as another factor leading to higher debt service costs.
Citing the Congressional Budget Office, S&P said it is common for the majority of total transportation and water infrastructure spending to go toward operations and maintenance.
"In our view, the chronic underinvestment in infrastructure by all levels of government contributes to the repeated tendency of the current economic expansion to stagnate rather than accelerate," analysts wrote. This, coupled with sluggish revenue growth and rising pension and entitlement program costs have "crowded out the states' capacity for growth-oriented investment," they said in their report.
