(The Center Square) – Texas is among 25 states that don’t have enough money to cover their bills, according to a new report published by the nonprofit Chicago-based Truth in Accounting (TIA).
At the end of fiscal 2024, 25 states were unable to cover all their financial obligations, according to TIA’s 16th annual Financial State of the States report, which analyzes states’ financial health, The Center Square reported.
Half of U.S. states are carrying significant debt burdens, “driven by rising costs, inflation, and ongoing pressure on budgets to fund promised pension benefits. With COVID-related federal funding winding down, states may face more difficulty managing budget pressures without additional financial support,” TIA says.
Texas had $169.7 billion available to pay $180.4 billion worth of bills in fiscal 2024, TIA says. The difference resulted in a $10.8 billion shortfall. Divided by the number of taxpayers, the burden placed on taxpayers to pay the debt is $1,100, TIA says.
Texas has a constitutional requirement to balance its budget. In order to do so, state lawmakers regularly shift current costs onto future taxpayers, TIA argues. One way to do this is to “shortchange” public pensions and Other Post Employment Benefits (OPEB) funds, TIA explains.
Nationwide, the majority of state debt is generally attributed to unfunded retirement liabilities where taxpayers are on the hook for current and future debt their governments accumulate, TIA says. Texas has nearly $51.3 billion in unfunded pension benefits and nearly $55 billion in unfunded retiree health care benefits, according to the analysis.
Each state is ranked according to a Taxpayer Burden™ (state budget shortfall divided by the number of taxpayers) and Taxpayer Surplus™ (state budget surplus divided by the number of taxpayers). Each state is graded on an A-F scale, with A-ranked states having the greatest surpluses and F-ranked states having the worst taxpayer burdens. States with taxpayer burdens are called “Sinkhole States;” states with surpluses are called “Sunshine States.”
Of the 25 Sinkhole states with taxpayer burdens, New Jersey ranked the worst with a taxpayer burden of -$44,500 and received an F grade. By comparison, Texas ranked 27 out of 50 with a taxpayer burden of -$1,100.
Texas received a C grade for its fiscal health primarily due to “money tied up in capital investments and funds for specific purposes,” the report states.
Despite Texas reporting another record budget surplus in fiscal 2024, Texas’ budget shortfall was still $10.8 billion, TIA says. This is because the money it needed to pay state obligations increased by $1.3 billion “mainly due to more money tied up in capital investments and funds for specific purposes. While these can help in the future, they reduce cash available for other needs,” TIA says.
The report cites record funding for public schools, teachers and retirement as the main reason for the budget shortfall.
The Texas legislature “funded a $5 billion boost in teacher retirement benefits, including a one-time bonus and permanent cost-of-living raises,” TIA notes. “However, the system remains $61 billion underfunded, with ongoing financial challenges ahead.”
It also notes that federal funding for Texas surged during the COVID-19 era through emergency and short-term programs. If federal funding returns to 2019 levels, adjusted for inflation, Texas could lose $22.7 billion, TIA notes. That would represent a 10% loss covering state expenses and “place additional strain on a government already facing challenges in meeting its financial obligations,” TIA warns.
Data used for the analysis was derived from Texas’ audited 2024 Annual Comprehensive Financial Report and its retirement systems’ reports.
