Bond Debt of the States – $1.1 Trillion

The American Legislative Exchange Council (ALEC) released a study this month where they looked over Comprehensive Annual Financial Reports (CAFRs) of the states to get a sense of the level of their bonded debt. Each state has their own page and there were several useful charts, recommendations, and explanations of terms and methodology. Excerpts follow and all I can add is: “Yep, that’s the New Jersey I know.”

Two states—Florida and New Jersey—prepared annual debt reports in lieu of long-term obligation notes in their state CAFRs and had less than descriptive official bond financial disclosures. These reports are detailed breakdowns of the state and component unit liabilities. In both cases, the ALEC Center for State Fiscal Reform research team reached out to the treasurer’s office. Florida referred the team to the Division of Bond Finance where staff quickly compiled a spreadsheet of the state liabilities and provided information about the type of bonds and obligations of each issuer. New Jersey’s various budget, finance, and treasurer’s offices were unable to decide between them who should respond to the team’s request. Eventually, the treasurer’s office responded, claiming that “the State cannot provide you with the underlying data from the visualizations as it would be providing asymmetric information to you that is not publicly available to the rest of the financial community.” For this reason, New Jersey’s debt service requirement to maturity table is less descriptive than any other state. (pages 32-33)

Unfortunately, states sometimes issue bonds for fiscally irresponsible purposes, such as papering over structural deficits. Others gamble by transferring borrowed funds into underfunded pension plans, hoping to generate investment returns greater than the interest on their bonded obligation, arbitrage. These actions are akin to a family carrying debt for living expenses such as rent or groceries on a credit card or investing proceeds from a cash advance in the stock market. Individual states borrow for a multitude of purposes and via a spectrum of debt instruments….In total, states and their component units have issued $1.1 trillion of bonded obligations, the equivalent of 62 percent of total state government expenditures in 2016.      (page 3)

Component unit revenue bonds are similar to state business-type activity bonds, in that they are usually funded by fees, fines, leases, and other service fees but differ in that component units can file for bankruptcy. (page 5)

Total “assets” held by the Federal Reserve—mostly consisting of government bonds purchased from banks—soared from under $900 billion in 2008 to more $4.4 trillion by the end of 2013. (page 24)

26 responses to this post.

  1. Posted by geo8rge on August 31, 2018 at 9:02 am

    Not including local bonds makes the numbers misleading especially for Illinois and New York.

    But also NJ, from 2015:

    Newark debt downgraded to junk bond status, as outlook on 6 N.J. cities turns negative

    Any word on the tunnel to NYC?


  2. Posted by Tough Love on September 1, 2018 at 8:45 am

    On pension reform and “spin”……….

    From ……

    “Texas’ Teacher Retirement System (TRS) took a prudent step toward improved solvency this past month when its board decided to lower its assumed rate of return from 8 percent to 7.25 percent. This action reflects trends seen around the nation, as fund managers are adjusting to projections of lower long-term returns. Some Texas teachers have expressed apprehension to the change and worry that the lower assumed rate will degrade the stability of the plan. ”

    Translation ……..

    No, they’re NOT worried that ….. “the lower assumed rate will degrade the stability of the plan”. What Texas teachers REALLY have apprehension about is that the change to a lower assumed rate of return will materially increase the Plan’s unfunded liability and annual taxpayer contributions, exposing that the “promises” made to them have a much greater cost than than what Taxpayers have been told, and that in turn may increase demands to lower the Plan’s generosity. AND, that higher annual pension Plan contributions will leave LESS money for annual raises.

    It’s all driven by greed, self-interest, and a taxpayer-be-damned attitude.


    • Posted by Anonymous on September 1, 2018 at 8:57 am

      Quoting TL, ‘It’s all driven by greed, self-interest, and a taxpayer-be-damned attitude’. It seems to me your statement is universal and, for example, applies to the majority of taxpayers under the Trump tax cuts.


      • Posted by Anonymous on September 1, 2018 at 12:59 pm

        Money for nothin’ (and chicks for free)

        Good news: My tax preparer estimated last year that for 2018, everything being equal, my federal taxes would be about $2,000 lower than 2017.

        Bad news: The federal debt will be $1.2 trillion higher.

        Good news: If you want, you can contribute more, to reduce the debt (or, just to contribute to the general fund. It’s fungible).

        Since 1996, Americans have donated about $26 million to reducing federal indebtedness.

        That’s about 0.00018 percent of the current national debt.


    • ” I prefer to look at what kind of employer federal, state and local governments should be, rather than how they can reduce benefits to conform to norms in the private sector. Simply put — government should be a model employer, and a model employer should care about more than the bottom line.”

      It’s a blessing… and a curse. But someone obviously has to do it.


      • Posted by Tough Love on September 4, 2018 at 8:32 am

        Those words come from author Jeff Neil, a 33 year Federal Service emplolyee, which means he is likely in the older Federal CSRP with a VERY rich pension (comparable to those of the better State & Local Public Sector Plans STILL in place today).

        Sure, it would be nice if EVERYONE could equally get such VERY VERY rich benefits, but the country simply cannot “afford” to do so, and given that the Taxpayers must pay for it, and that the 85% of all workers who WOULD be called upon to pay for those rich pensions work in the PRIVATE Sector (and in most cases get employer-provided retirement security with 1/4 the value), it would be eminently UNFAIR to those Private Sector Taxpayers to provide Federal employees with such RICH pensions ……………. just as it is to (right now) CONTINUE to providing such rich pensions to State & Local Public Sector workers.


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