Truth in Accounting Report : New Jersey in the Worst Fiscal Shape in the Nation

Is Your State a Financial Sinkhole? New Jersey and California Top 2025 “Debt” List

the staff of the Ridgewood blog

Trenton NJ, A sobering new report from Truth in Accounting (TIA) reveals a deepening divide in the fiscal health of America. While some states are basking in “sunshine” surpluses, 25 U.S. states are currently “sinkholes,” lacking the necessary funds to pay their bills.

The 2025 Financial State of the States report highlights a staggering $1.2 trillion in total state debt, driven primarily by massive unfunded pension obligations and retiree healthcare liabilities.

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The Top 5 “Sinkhole States” (Worst Financial Condition)

These states have racked up the highest Taxpayer Burden—the amount each individual taxpayer would need to contribute today to wipe out the state’s debt.

1. New Jersey: Ranked #1 for the most severe burden at $62,500 per taxpayer.

2. Connecticut: Despite slight improvements, residents are on the hook for $44,300 each.

3. Illinois: Struggles with chronic underfunding and a persistent pension crisis.

4. Massachusetts: Cited for insufficient funds to cover long-term costs.

5. California: Holds the nation’s highest total liabilities, exceeding $498 billion.

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The Root of the Crisis: Unfunded Promises

Why is state debt exploding? According to TIA, it isn’t just day-to-day spending; it’s the “invisible” debt of future promises.

• Unfunded Pensions: Totaling $832 billion across the 50 states.

• Retiree Healthcare (OPEB): Totaling $514 billion.

• The “Credit Card” Maneuver: TIA warns that many officials use accounting gimmicks to present “balanced” budgets. In reality, they are pushing current expenses onto future generations—much like charging a vacation to a credit card without a plan to pay the bill.

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The “Sunshine” States: A Different Story

On the flip side, 25 states are successfully managing their finances and maintaining a surplus. These “Sunshine States” have enough assets to pay all their bills and still have money left over.

The Top 5 Surplus States:

1. North Dakota

2. Alaska

3. Wyoming

4. Utah

5. Tennessee

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Progress Amidst the Debt?

There is a glimmer of hope in the data. The number of states unable to pay their bills has dropped significantly over the last several years:

• 2018: 40 states were “sinkholes.”

• 2025: Only 25 states remain in the red.

While the total debt of $765 billion among the sinkhole states is daunting, the trend suggests that some legislatures are finally taking fiscal responsibility seriously.

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At a Glance: State Financial Health 2025

Metric	National Total
Total State Assets	$2.2 Trillion
Total State Debt/Liabilities	$2.9 Trillion
Total Funding Gap	$765 Billion
Primary Debt Driver	Unfunded Pensions ($832B)

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