As debt issues in Europe continue to plague the world markets, European nations teeter on complete fiscal collapse.  Similarly, many U.S. states are likewise under immense fiscal pressures because of their debt.  Annual budget gimmicks and accounting tricks utilized by state governments often result in an unrealistic portrayal of the state’s actual financial situation. These budgetary practices have helped orchestrate the structural deficits inherent in many state budgets – specifically California’s.  One group who has worked to reveal the states’ actual fiscal conditions is the State Budget Solutions.  In its efforts to remove the budget veil, State Budget Solutions (SBS) has designed a study that defines a state’s total debt as the sum of outstanding official debt, pension liabilities, Unemployment Trust Fund loans, and current budget gap. This method provides a more accurate picture of what a state actually owes.

In October, SBS released its report that found the actual combined debt of all 50 states amounts to more than $4 trillion. Not surprisingly, California ranks first, as the state with the greatest amount of debt.  According to the study, California’s total debt is $612 billion, over twice that of New York’s, the second worst state on the list; in fact, California’s debt is greater than the top twenty-five states combined.


The fact that California has been able to amass this level of financial obligation stems directly from the inability of legislative Democrats to curb spending and produce a “real” fiscally responsible and balanced budget. Too often politicians view debt as a mere inconvenience, rather than a serious problem. While families across California make tough decisions and sacrifices in order to ensure they are able to meet their financial obligations, state government continues to spend taxpayer dollars as if the same rules do not apply to them.

The recent release of the Legislative Analyst’s Office (LAO) Budget Outlook points out what most observers already knew, last year’s gimmick-filled budget would fail to meet projections.  Based on the LAO’s analysis, California will face at least a $13 billion deficit in the 2012-13 budget year.  Another unbalanced budget will again contribute to the state’s growing debt. Continuing down this unsustainable path will ultimately result in further loss of credibility, a poor credit rating, long-term insolvency, and a weakened economic recovery. These are burdens we should make every effort to avoid placing on the next generation.

In order to reverse this cycle, California lawmakers must be willing to prioritize spending and make tough decisions. $612 billion in total state debt cannot be overcome with superficial “changes”; it requires sacrifice and a commitment to find real solutions. Resolving the state’s unfunded pension liabilities must be at the top of the list since pension debt not only threatens California’s creditworthiness, it also jeopardizes future retirement benefits. Once substantial improvements are in place to curb abuses and create a balanced approach to retirement compensation, the cost savings can then be used to pay down accrued debt. Until the Legislature decides to take this problem seriously and act sooner rather than later, it will continue to threaten the financial stability of state government while also stifling California’s economic recovery. It is time to do what is best for the future of California: reduce spending to consistent sustainable levels and reduce the state’s crushing debt.