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The COVID-19 pandemic has had enormous impacts on state and local governments by reducing tax revenue, causing widespread unemployment, and increasing healthcare costs. In addition to reducing spending and, in some cases, raising taxes, state governments have relied on debt to address their budget shortfalls during the pandemic. According to data from the U.S. Census Bureau, total state and local government debt was $3.17 trillion in 2019 or about $9,700 per person.
State governments use debt to finance education, infrastructure, and cover budget gaps, among other things. State and local government debt can fluctuate due to spending habits or changes in income from taxes and other sources, such as during recessions. In the 1940s and 1950s, state and local government debt was much lower than today. Federal, state, and local governments grew substantially during the 20th century. Spending, revenue, and debt increased as the population grew, and the government invested more in infrastructure, education, and social programs.
Leading up to the Great Recession that began at the end of 2007, total state and local government debt increased sharply. It has been falling since 2010 but increased between 2019 and 2020. In the wake of the pandemic, the coming years will likely see a continuation of this trend. States with rising debt may raise taxes or cut spending to help bring their budgets under control.