(The Center Square) – Tennessee has the 10th-lowest bonded obligations per capita at $1,313 per person, according to a recent report from the American Legislative Exchange Council that details the $1.25 trillion in bonded obligations nationwide.
The state of Tennessee has nearly $9 billion in bonded obligations, according to the report, which was part of ALEC’s annual report from its Center for State Fiscal Reform. It shows the amount of debt each state holds and features policy solutions to solve the debt issues.
“State governments borrow for a myriad of reasons and issue various types of bonded obligations,” the report said, detailing how those liabilities account for an obligation of $3,800 per person nationally. States issue bonds to pay for long-term projects with the backing of their state credit ranking.
The report said many states borrowed expecting large losses between 2020-22 because of the COVID-19 pandemic, and Moody Analytics estimated there would be between a $200 billion and $400 billion shortfall during those fiscal years.
“State tax revenue data show that many collected as much tax revenue as in 2019, with some states collecting even more tax revenue in 2020,” the report said. “States that borrowed in anticipation of revenue losses in 2020 now have a permanent debt obligation to pay. This study also finds that the states with the largest debt burdens before the crisis are having the most trouble managing their finances.”
Tennessee has $2.26 billion in general obligation bonds, ranking 28th nationally, but it is one of eight states with no government activity bonds and one of 12 states with no business-type activity bonds. Tennessee does, however, have $6.7 billion in component-unit bonds, ranking 33rd nationally.
Those bonds are debt related to entities a state government creates but are legally separate from the state and, therefore, can go bankrupt.
“Many states are continuing to use bonds to increase government spending and pass the buck to future generations of taxpayers,” ALEC Chief Economist and Executive Vice President of Policy Jonathan Williams said. “But even in the near term, states that neglect to reform their budgeting practices will eventually see taxpayers leave for states with less burdensome tax and fiscal policies. Fortunately, states like Indiana and Nebraska have constitutional amendments to keep debt limits relatively low and provide valuable lessons for policymakers in states suffering from significant debt burdens.”