Strong investment markets boosted state finances, but pension debt remains a concern

Despite financial improvements, 24 states still lacked enough money to pay their bills

CHICAGO, IL, UNITED STATES, October 15, 2026 /EINPresswire.com/ -- Strong investment market performance helped improve the financial condition of most state governments in 2025, primarily by increasing the value of assets held by public pension systems. However, 24 states still did not have enough money to pay all their bills, according to Truth in Accounting's (TIA) seventeenth annual Financial State of the States report, released today.

The report ranks all 50 states by financial health and warns that elected officials should not mistake favorable investment returns for long-term financial stability.

Collectively, the 50 states had $2.85 trillion in bills and $2.23 trillion in assets available to pay their bills. The bills included $775 billion in unfunded pension liabilities and $490 billion in other post-employment benefits, primarily retiree healthcare costs.

The stock market played a significant role in improving state finances. Strong investment returns increased the value of pension assets and reduced unfunded pension obligations in most states. However, these improvements depend heavily on market performance, and investment gains can quickly disappear during an economic downturn.

Truth in Accounting cautions lawmakers against using these temporary gains to justify increasing retirement benefits or reducing pension contributions. Instead, states should use favorable market conditions to fully fund their pension obligations and build financial reserves that can withstand future market downturns.

"When the stock market does well, state finances look better, but that doesn't mean governments have more money to make new promises," says Sheila Weinberg, founder and CEO of Truth in Accounting. "States should use these good years to fully fund the pension benefits they've already promised, not increase benefits or reduce contributions. Taxpayers shouldn't be left paying the price when the market takes a downturn."

Not all states benefited equally from strong market performance. Fourteen states saw less than a five percent improvement in their unfunded pension obligations because investment gains were offset by rising benefit costs, pension benefit payments, actuarial changes, and insufficient employer contributions. These states included Alabama, Hawaii, Illinois, Kentucky, Maryland, Missouri, Montana, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oregon, and Texas.

Illinois, for example, earned nearly 10 percent in investment returns, yet its major pension plans experienced little to no improvement, largely because contributions remained below recommended levels. Years of underfunding have left Illinois with just 47 cents in pension assets for every dollar of benefits promised.

Unlike private-sector pension plans, state and local government pensions are exempt from the federal Employee Retirement Income Security Act of 1974 (ERISA), which establishes funding and reporting protections for private-sector retirement plans. Truth in Accounting encourages lawmakers to adopt similar standards for government pensions to better protect retirement promises and safeguard taxpayers.

Every state except Vermont has a balanced budget requirement. Yet 24 states still lacked sufficient assets to cover their obligations at the end of fiscal year 2025. This means that despite balanced budget requirements, elected officials have allowed costs incurred today to be shifted to future taxpayers.

To help taxpayers better understand their state's financial condition, Truth in Accounting calculates each state's debt or surplus on a per-taxpayer basis, referred to as a Taxpayer Burden™ or Taxpayer Surplus™.

New Jersey ranked last for the second consecutive year, with a Taxpayer Burden of $45,800. Conversely, North Dakota maintained its first-place ranking with a Taxpayer Surplus of $72,300. The five highest-ranked and five lowest-ranked states remained unchanged from the previous year.

The report also highlights the importance of timely and transparent financial reporting. As of September 1, 2026, four states had not released their fiscal year 2025 financial reports, so Truth in Accounting used 2024 data for those states. Without timely financial information, taxpayers and elected officials cannot accurately assess a state's financial health when making budget decisions.

While strong investment markets provided welcome financial improvements in 2025, Truth in Accounting warns that states must prepare for inevitable market fluctuations. Fully funding pension promises during strong economic periods can help protect taxpayers, government employees, and retirees from future financial instability.

You can access the full 2026 Financial State of the States report here.

Sheila Weinberg
Truth in Accounting
+1 217-801-5821