State governments are issuing debt at a slower rate than at any time in the past two decades and stockpiling cash surpluses in rainy-day funds, according to a new report, reflecting a wariness to new debt following a recession that forced states to borrow billions.
Indiana hasn't issued any new debt – instead paying its obligations off early.
The combined tax-supported debt of all 50 states grew by just $2 billion in 2013, to $518 billion, an increase of just 0.4 percent, while per capita debt issued by states declined 2 percent from the previous year.
That's far below the 6.5 percent average growth of the past decade and a fraction of recession-era peaks in 2004 and 2010.
About half the states saw their amount of net tax-supported debt decline from the previous year in 2013. Budget surpluses in most states allowed them to pay off debt without issuing new bonds, the report from Moody's Investors Service found. Even states with some of the biggest debts in the nation, such as California, cut their obligations by significant margins.
Indiana has been paying down its tax-funded debt for years – starting under former Gov. Mitch Daniels.
During Daniels' eight years in office, it dropped from $3.6 billion to $1.7 billion – including him burning the mortgages of several government buildings.
Since Gov. Mike Pence took over, that number has dropped to just under $1.5 billion.
Pence paid off the Indiana State Museum and state forensic lab as lawmakers provided for in the state budget. And he used additional surplus money to pay off the Miami Correctional Facility. Those three payments add up to $174 million in debt paid down under Pence.
“It reflects a desire on behalf of taxpayers to start getting out of debt,” said State Budget Director Brian Bailey. “Our instincts are to pay down the debt we have and hold the line on incurring more.”
Legislative budget leaders agree. That's why they provided $234 million in cash funding for state and university capital projects in the current two-year state budget. This is instead of bonding and adding to the debt.
Bailey said it also helps the state keep its AAA credit rating.
“A strong management position on debt shows you are fiscally responsible,” he said.
The slowdown in debt issuance comes as a new conservative attitude toward debt takes hold. States that borrowed heavily during the recession want to put their fiscal houses in order.
At the same time, states are saving more money in rainy-day funds depleted by the recession.
The amount of debt that states carry as a percentage of personal income fell for the first time in five years, Moody's found, from 2.8 percent in 2012 to 2.6 percent last year. Sixteen states carry debts of less than 2 percent of personal income.
Hawaii, Connecticut and Massachusetts lag behind their peers. Hawaii carries $6.6 billion in tax-supported debt, equal to about 10.6 percent of the state's personal income. Connecticut and Massachusetts carry debt worth more than 9 percent of personal income.
California remains the nation's largest debtor, at $94 billion.
Niki Kelly of The Journal Gazette contributed to this story.