WASHINGTON—When faced with large expenses, such as building or repairing roads, bridges, and other infrastructure, state governments often borrow money, allowing the projects to move forward while spreading the costs over time. But gauging whether a state can afford to take on new debt can be difficult. A debt affordability study is a tool that officials use to evaluate the impact of these liabilities on the state’s finances and give lawmakers the power to manage their debt effectively over the long term. While 27 states conduct debt affordability studies, only nine produce studies with all the necessary elements to give policymakers a clear understanding of their state’s debt levels, according to a report released today by The Pew Charitable Trusts.
The report, “Strategies for Managing State Debt: Affordability Studies Can Help States Decide How Much to Borrow,” examines data from all 50 states and sets criteria for a strong debt affordability study. The research found that:
“Used carefully and methodically, debt can be a powerful instrument that state and local governments can use to repair vital infrastructure, improve quality of life, and drive economic growth,” said Mary Murphy, director of Pew’s state and local fiscal health project. “These affordability studies provide crucial data that help officials better understand and manage their state’s debt.”
Based on an analysis of data from each state, Pew developed criteria for a high-quality debt affordability study. Generally, the leading states:
These guidelines are designed to help state officials who want to strengthen an existing study or are conducting one for the first time.
“As state officials face competing pressures to save or spend, grasping the nuances of debt management is becoming ever more important,” said Murphy. “This report is intended to be a helpful tool for policymakers to manage debt and make informed choices about state finances over the long term.”
The Pew Charitable Trusts is driven by the power of knowledge to solve today’s most challenging problems. Learn more at pewtrusts.org.