Half of U.S. States Spend More Than Revenue

A new report shows many states are carrying significant deficits despite reporting balanced budgets.

Updated on Oct. 20, 2026 in Financial Planning

Bold flat-color editorial illustration of a precarious stack of metallic discs on a concrete base, representing state fiscal instability. — Approximately half of U.S. states are spending beyond their annual revenue for fiscal year 2025, often masking deficits with accounting practices. AI Illustration. Upload story photo >

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Should your state prioritize balanced budgets even if it requires reducing public services?

Approximately half of U.S. states are spending beyond their annual revenue during fiscal year 2025. Many of these governments often rely on accounting practices that exclude certain costs to maintain the appearance of fiscal balance.

Why it matters

Budget shortfalls are frequently driven by rising costs from unfunded pension and retiree healthcare obligations that place long-term strain on state finances. States often mask these gaps by understating expenses or overstating projected income.

New Jersey holds the largest budget shortfall at $46,000 per taxpayer, while North Dakota leads with a $72,300 surplus per taxpayer. Oregon and Minnesota also report surpluses of $5,800 and $6,300 per taxpayer, respectively.

The players

Truth in Accounting

This is a non-profit organization that analyzes government financial documents to provide transparency regarding state and federal debt.

The details

States frequently balance their budgets on paper by using conservative estimates for upcoming costs or by ignoring historical deficits. This approach allows governments to meet requirements while leaving significant liabilities for retiree benefits unaddressed.

Fiscal year 2025 served as the primary reporting period for these state balance sheets.

Market Dynamics

This analysis challenges the traditional reliance on the Governmental Accounting Standards Board (GASB) reporting requirements, which often exclude long-term pension liabilities. It reflects a growing tension between mandatory fiscal reporting and the actual economic health of state pension systems.

Individual taxpayers should be aware that state-level deficits can correlate with future tax increases or cuts to public services. Monitoring these fiscal gaps helps residents assess the long-term sustainability of their local government finances.

The takeaway

Understanding the distinction between official balanced budgets and actual spending is crucial for gauging the financial health of your state. Residents should review state-level comprehensive annual financial reports to identify hidden pension liabilities.