State officials often choose to borrow money to finance large expenses, such as expanding a congested highway or replacing defunct wastewater treatment plants. By distributing the cost of a large investment over many years, governments can free up cash on hand to meet their current day-to-day expenses. Borrowing for long-lasting infrastructure, primarily by issuing bonds, also spreads the cost over generations of taxpayers, enabling states to finance multiple pressing needs simultaneously. As debt financing continues to be an attractive option for states seeking to bolster aging public facilities, utilities, and services, it is important for policymakers to understand just how much debt they can afford to issue.
However, policymakers often lack the data needed to make informed decisions about their debt—from appropriate borrowing levels to the way the debt is structured. Compounding this challenge, many states do not have systematic ways to collect, evaluate, and monitor debt-related data.
To address these difficulties, The Pew Charitable Trusts conducts research on all states to help them better understand and administer their debt. To do that, we encourage states to conduct a debt affordability study on a regular basis. This critical tool helps states evaluate their capacity to repay existing obligations and make informed decisions on issuing and structuring any new debt.