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The annual Financial State of the States report, published by Truth in Accounting (TIA), offers a detailed analysis of the fiscal health of all fifty states. The 2025 edition, released this fall, shows modest national improvement but continued financial strain for many state governments. While Texas remains far stronger than the most indebted states, it continues to carry a modest taxpayer burden driven primarily by long-term liabilities such as pensions and retiree health benefits.
2025 National Fiscal Trends
The 2025 report reveals that, collectively, the fifty states held approximately $2.9 trillion in debt and $2.2 trillion in assets at the close of fiscal year 2024, resulting in an overall shortfall of $765 billion. This represents a slight improvement over the previous year’s $800 billion shortfall, suggesting that some states have begun to stabilize their finances. However, the aggregate national picture remains one of substantial structural imbalance.
Unfunded retirement obligations remain the largest driver of state debt. Pension systems across the country carry a combined $832 billion in unfunded liabilities, while retiree healthcare obligations, known as Other Post-Employment Benefits (OPEB), total $514 billion. Together, these two categories account for nearly nine-tenths of total state-level debt.
Although most states operate under constitutional or statutory balanced budget requirements, many continue to employ accounting maneuvers that obscure their true financial condition. Delayed vendor payments, postponed pension contributions, and borrowing against future revenues allow states to appear fiscally balanced on paper while deferring costs to future taxpayers. TIA’s report warns that such practices create an illusion of solvency while deepening long-term risk.
The report also highlights the waning influence of temporary federal relief provided during the pandemic. Federal aid to state governments peaked at $1.5 trillion in 2021 but has since declined closer to pre-pandemic levels. TIA estimates that if federal contributions return fully to 2019 levels, adjusted for inflation, the combined budgets of the states would face a shortfall exceeding $300 billion, or roughly ten percent of projected annual expenses.
Sunshine and Sinkhole States
Truth in Accounting categorizes states into two groups based on their ability to pay bills and meet financial obligations. “Sunshine States” possess sufficient assets to cover all liabilities, while “Sinkhole States” do not.
In 2025, twenty-five states qualified as Sunshine States and twenty-five as Sinkhole States, the same distribution as last year. North Dakota maintained its first-place ranking with a Taxpayer Surplus of $63,300, improving from $55,600 in 2024. Alaska followed with a $48,500 surplus, while Wyoming, Utah, and Tennessee also earned top marks with surpluses of $27,200, $14,400, and $10,900, respectively. Each of these states received an “A” grade for financial strength and continues to demonstrate disciplined budgeting and strong resource-driven revenue streams.
At the opposite end of the spectrum, New Jersey and Connecticut again ranked lowest, each carrying a Taxpayer Burden of $44,500. Illinois followed with $38,800, while Massachusetts and California reported burdens of $24,900 and $21,800. These states continue to wrestle with large pension and healthcare obligations, often compounded by slow economic growth and elevated spending commitments.
The overall national distribution of grades remained largely unchanged. Five states received “A” grades, twenty received “B” grades, seven received “C” grades, thirteen received “D” grades, and five received “F” grades. This suggests a relatively stable national trend, with some incremental improvement but no substantial movement toward reducing long-term liabilities.
Texas’ Financial Standing in 2025
Texas ranked twenty-seventh in the 2025 report, with a Taxpayer Burden of $1,100 and a “C” financial grade. This represents a small decline from twenty-fourth place in 2024 but still places the state within the middle range nationally. According to the report, Texas would need $1,100 per taxpayer to cover all existing bills and obligations fully.
While Texas remains far better positioned than heavily indebted states like Illinois or New Jersey, its underlying financial pressures have not subsided. The state’s strong economy, driven by energy, technology, and real estate, provides resilience. The absence of a personal income tax and relatively low business taxes continue to attract new residents and employers, expanding the tax base. However, despite this economic growth, Texas continues to face increasing long-term obligations.
Truth in Accounting observed that the amount of money Texas needed to pay its bills rose by roughly $1.3 billion over the previous year, largely due to more funds being tied up in capital investments and restricted accounts. While these investments may yield future benefits, they limit the state’s available cash for immediate obligations. In addition, the state authorized a $5 billion increase in teacher retirement benefits, including both a one-time bonus and permanent cost-of-living adjustments. Even so, the teacher retirement system remains more than $60 billion underfunded, highlighting ongoing challenges in fully funding public sector pensions.
Texas in 2024: A Comparison
The 2024 report ranked Texas twenty-fourth with a $900 Taxpayer Burden, meaning the state has experienced a minor decline both in rank and in its per-taxpayer balance. This change reflects modest increases in liabilities rather than significant economic weakness. Texas continues to maintain a strong and diversified economy, but long-term commitments continue to outpace the reforms necessary to stabilize those obligations.
Although Texas’s fiscal position slipped slightly, the state remains well ahead of most large states. California’s 2025 burden stands at $21,800 per taxpayer, New York’s at $8,400, and Pennsylvania’s at $9,400. Relative to its population size and economic scale, Texas continues to manage its finances more prudently than many of its peers, though its overall ranking suggests that structural improvements remain necessary.
The Challenge of Pension and OPEB Liabilities
Unfunded retirement obligations remain Texas’s most significant long-term challenge. Like many states, Texas has promised generous pension and healthcare benefits to public employees without consistently setting aside sufficient funds to meet those commitments. Pension systems are funded at approximately seventy-two cents for every dollar promised, and retiree healthcare systems are funded at roughly fifteen cents for every dollar owed, which aligns with the national average.
These liabilities represent compensation earned during employment but deferred to future years, meaning the financial burden eventually falls on future taxpayers. Unless these commitments are funded more aggressively, Texas risks facing higher taxes or reductions in services as those obligations mature. Truth in Accounting recommends that states adopt full accrual, or FACT-based, accounting standards to more accurately record liabilities as they are incurred. Under such accounting, all retirement benefits and deferred costs would be reflected in the state’s financial statements in the year they are earned, rather than being delayed to future budgets.
Texas in the National Context
Texas’ position in the middle of the national rankings underscores both its strengths and its vulnerabilities. Neighboring states such as Oklahoma, Arkansas, and West Virginia reported surpluses, earning “B” grades, while Louisiana and New Mexico continued to operate with significant taxpayer burdens and “D” grades.
On a broader scale, the report highlights a clear pattern between state size, spending behavior, and fiscal stability. Smaller, resource-rich states tend to maintain surpluses, while larger, high-spending states continue to operate with deep deficits. Texas falls somewhere between those categories, benefiting from economic vitality and population growth but facing corresponding pressures to expand infrastructure, education, and public service programs.
Compared with 2024, national debt ratios improved slightly, but the overall trend remains one of high dependency on optimistic accounting assumptions and market-driven pension valuations. Texas’ fiscal health, though sound relative to most large states, could be undermined if investment performance weakens or if retirement costs continue to expand faster than revenues.
Path Forward for Texas
The 2025 State of the States report makes clear that Texas continues to occupy a position of relative fiscal stability while carrying unresolved long-term risks. Continued progress will depend on greater transparency and a commitment to long-term reform. Texas’s lawmakers and financial managers can strengthen the state’s position by improving the funding status of pension and retiree health programs, adopting full accrual accounting practices that accurately reflect all liabilities, and maintaining disciplined spending even during times of budget surplus.
Although Texas is far from the fiscal challenges faced by the most indebted states, its future financial stability will rely on confronting these long-term obligations directly rather than deferring them to future generations. Truth in Accounting’s analysis serves as a reminder that economic prosperity alone cannot offset the consequences of unaddressed liabilities, and that sustainable government finances require both transparency and restraint.
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