People from blue states often regard themselves as oh so much more sophisticated than citizens of those benighted red states. Not so fast.
There is one way in which the red states appear to be vastly superior: State and local governments in blue states are drowning in debt, while those in redder states tend to have enough resources to meet a rainy day.
Those states where Democrats are firmly in control have far more debt, even when adjusted for population size, than Republican-controlled states. So-called red states are also better prepared to deal with their debt when the next fiscal storm arises because they’ve accumulated more of a financial cushion than Democratic states.
Malanga's article is based on an August study from the American Legislative Exchange Council (ALEC). The study examined the bonded obligations of state governments. Malanga observes:
The study found that states have incurred some $1.1 trillion in debt through “a diverse array of bond obligations.” Seven big states—California, New York, Texas, New Jersey, Illinois, Massachusetts, and Washington—account for half the total. That’s not surprising, given the size of these states, but comparing all states by debt per resident is revealing.
Eight of the ten states that have amassed the most debt per resident—including Connecticut, Rhode Island, Massachusetts, Hawaii, and New Jersey—are categorized by Gallup as solidly Democratic by political affiliation. The only firmly red state on the list of those with the most debt is South Carolina, ranked tenth in debt per resident, at $5,234. Alaska, a state that Gallup classifies as “leaning” Republican, tops the list, at $10,576.
States on the bottom of the list—that is, with the smallest debt per resident—are solidly Republican. With just $112 in debt per resident, Wyoming borrows the least. Six other Republican states also rank low on this measure, including Florida, Tennessee, and Nebraska. Gallup judges three other low-debt states—Arizona, Colorado, and Missouri—as neither red nor blue, regarding them as neutral or “competitive.” Among the ten states with the least amount of debt per resident, none is Democratic.
When does debt become truly risky?
Having lots of debt and little cash in the bank is the worst of both worlds.
What states have reserves?
While Alaska has the most debt, it also has the most cash stashed away, and could operate for more than a year solely on its reserves. Seven Republican-leaning states rank among the top ten in terms of how long they could keep their governments running with the cash they’ve stockpiled—including Wyoming, Nebraska, and Texas.
By contrast, the three states with the smallest cash-reserve cushions are politically neutral Pennsylvania and Democratic-controlled New Jersey and Connecticut. Republican states with small cash reserves include Kansas and Kentucky.
Debt in and of itself is not the problem. Debt, wisely managed, can do things that benefit a state. Debt can be used to improve infrastructure, for example. Yet states with worse ranked infrastructure (aggregated reports from financial news company 24/7 Wall Street) are also those with highest debts.
Among the high-debt/inferior infrastructure states are Hawaii, New Jersey, Massachusetts, Rhode Island, Delaware, and California. Florida, Montana, Wyoming, and North Dakota are low-debt states with highly ranked infrastructures.
The other question concerns how well states spend their borrowed money.
Blue New Jersey was ordered to improve its school buildings in 1998.It borrowed $8.6 billion to that end. The project was then turned over to an agency that awarded no-bid contracts to firms that had contributed to then-governor Jim McGreevey’s political campaigns. The project ran out of money and borrowed another $3.9 billion.
Ultimately, it is the taxpayers who suffer when states don't manage their finances well.