Debt loads

May 25, 2011

The panic surrounding municipal debt rarely references data from other government bodies, such as the debt of the U.S. federal government or European states. If we compare state debt loads to the sovereign liabilities of Western developed countries, they look eminently manageable.

One of the first posts I wrote for Muniland was about the relative debt loads of the states and the federal government:

To help us understand on a quantitative basis we have some useful data from the Securities Industry and Financial Markets Association (SIFMA). The data tells us that the municipal market is shrinking on a relative basis to other fixed income classes. Quelle surprise!

The borrowing needs of states, cities and public/private partnerships have grown from ~ $400 billion in 1980 to ~ $2.93 trillion in 2010. This is about a 7 fold increase.

But total US debt outstanding has grown from ~ $ 2.57 trillion in 1980 to a whopping $ 35.97 trillion in 2010. This represents a 14 times increase. Or double the growth of municipal debt.

The rating agency Standard & Poor’s has published a new report that provides more specific numbers on the indebtedness of states. I thought it would be useful to aggregate this data with the comparable data for the federal level.

States Federal
Debt per capita (state median) $ 932 $ 46,223
Debt service as % of expenditures 3.6% 5.8%
Total 2010 debt issuance in $ billions $ 433 $ 2,303
Source: S&P, SIFMA,


From the S&P report (emphasis mine):

While there are several states that have what we consider to be a relatively high debt burden compared with their state peers, we think that, overall, the sector has a lower debt profile relative to sovereign entities across the globe.

Even when pension obligations are included, comparisons are favorable (see “U.S. States’ Pension Funded Ratios Drift Downward,” published March 31, 2011).

We recognize that these comparisons exclude local government debt, which will typically have a dedicated tax/revenue source for repayment, is issued for capital purposes, and is also amortizing.

For most U.S. states, the amortizing nature of debt obligations has eliminated the “rollover risk” to which other sovereign entities are exposed.

We have seen a large reduction in states’ issuance of debt in 2011. They are not borrowing from the future to fund the present. States cannot “print money” in the way that the federal government does to fund its excess spending. States (except for Vermont) must annually balance their budgets. On a relative basis most states have done an exceptional job in reining in their borrowing. Maybe it’s time for the federal government to do the same?

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