California’s state and local governments have over $1 trillion in total debt, amounting to over $27,300 per Californian, according to a new Reason Foundation report. Over half, 46%, of California’s state and local government debt, or $497 billion, is at the state level. The remaining liabilities are distributed among city governments (16% of total debt), county governments (18%), and school districts (20%).
As the nation’s most populous state, it is reasonable that California would have the most total debt. However, even when adjusting for population, California still ranks among the most indebted states. In total, California’s state and local governments rank seventh highest in per capita debt among all 50 states.
This debt did not happen overnight. More than 70% of California’s $1 trillion in state and local government debt is long-term obligations, such as outstanding bonds, unfunded public employee pensions, and public workers’ retirement health care benefits. The state government holds $299 billion in these types of long-term debt, more than any other state. This long-term debt is equivalent to nearly $7,600 per capita, 13th highest in the country.
Among Southern California’s largest cities, Los Angeles predictably leads with $53 billion in long-term debt ($13,600 per capita). Long Beach has $4 billion in long-term debt ($9,500 per capita). Anaheim has $3 billion ($8,700 per capita), Riverside owes $2 billion ($7,100 per capita), Santa Ana holds $1 billion ($3,200 per capita), and Irvine has $546 million ($1,800 per capita) in long-term debt.
At the county level, Los Angeles County leads with $52 billion in long-term debt (about $5,200 per capita). Orange County owes $6 billion ($2,000 per capita) in long-term debt, Riverside County has $7 billion ($2,800 per capita), and San Bernardino County holds $3 billion ($1,400 per capita) in long-term debt.
Southern California’s school districts are also heavily indebted, particularly with unfunded pension liabilities. The Los Angeles Unified School District has $27 billion in long-term debt, which comes out to an eye-opening $62,300 per student. The per-student debt number will continue to rise if LAUSD continues to suffer the enrollment losses projected in the years ahead.
The Long Beach Unified School District owes $3 billion, which is $46,500 per student. Santa Ana Unified holds $1.5 billion in debt ($36,300 per student), and the Riverside Unified School District owes $942 million ($23,900 per student).
At all levels of government, California has a debt crisis. If nothing changes, debt service will increasingly crowd out essential services, forcing governments to shift money from taxpayers’ priorities like policing, infrastructure, and schools to pay for the debt.
Some lawmakers will likely push for tax increases to keep funding their preferred programs. But California’s tax burden is already high, and further tax increases would risk pushing more families and businesses towards more affordable states like Nevada, Arizona and Texas.
Over the past several years, California has experienced negative net migration with more people leaving the state than moving in. As people and businesses leave the state, fewer remain to repay the government’s already accrued debt.
To start reducing debt levels and improve long-term fiscal stability, California’s state and local governments must reduce and realign spending with revenues, prioritizing how and where taxpayers’ money is spent. They should balance annual budgets, and in years with surpluses, that money should go toward paying down debt.Reducing personnel costs through efficiencies and public-private partnerships can help. Selling underutilized buildings, land, and other assets can further pay down debt.
Further reform to public pensions and retiree health care benefits can be mutually beneficial, preventing underfunding and debt, strengthening public employees’ retirement security, and giving them more flexibility.
The magnitude of California’s debt will require short- and long-term solutions, along with political and popular will to implement them.Mariana Trujillo is managing director of government finance at Reason Foundation, where she co-authored the State and Local Government Finance Report.
