Each taxpayer’s share of the state debt: $4,100

Paying off the obligations the state of Michigan owes public retirees and others would require each taxpayer to surrender another $4,100 to the public treasury, according to a new report from a nonprofit that analyzes state budgets. The report also warns that Michigan’s budget could face an 8% shortfall if the federal government were to reduce its financial support of Michigan to its pre-pandemic level.

The Financial State of the States 2025 reviews the annual comprehensive financial report of each state government, comparing the state’s liabilities to its assets. It ranks the states and assigns them an A-F letter grade. Michigan was below the national average, ranked 32 out of 50. It had a financial grade of “C.”

Michigan is one of the 25 states that do not have enough money to pay their bills, which include bonds and retirement benefits, according to Truth in Accounting, which published the report. Michigan had $58.3 billion worth of bills but only $44.2 billion available to pay them, as of the latest data Truth in Accounting had available. That comes to a shortfall of $4,100 per taxpayer.

The report includes in its calculations the number of people who filed a federal income tax return and had an income tax liability, Sheila A. Weinberg, CEO of the organization, told Michigan Capitol Confidential in an email earlier this year. The per-taxpayer burden reflects “future taxes that will need to be paid to cover for liabilities that have already been incurred,” she added.

If a state does not have enough money to pay its bills, legal or political obligations to retired government employees often play a large role. This is true in Michigan. Truth in Reporting said the state had $19.4 billion in bonded debt, but it had even more debt — $29.3 billion — in unfunded pension obligations.

Michigan’s situation improved, the report said, by “significant reductions in retirement systems’ liabilities,” aided by strong investment returns. Truth in Accounting gave Michigan a “D” grade in 2024 and reported each taxpayer’s share of unpaid bills at $7,600.

The state’s political leadership can also take some credit, according to James Hohman, a fiscal policy analyst at the Mackinac Center for Public Policy. “Michigan lawmakers have made a lot of progress in paying down pension liabilities and preventing future underfunding,” he told CapCon in an email.

Hohman urged lawmakers to do more to reform the state’s public pension systems. “There are no short-term solutions when governments made employees and pensioners the state’s largest creditors,” he added. “The Truth in Accounting report highlights that it will take more time to catch up on what is owed.”

Michigan taxpayers are in a better spot than their counterparts in some neighboring states, but in a worse spot than those in others, the report said. Taxpayers in Illinois face a much higher burden: $38,800 per person. Those in Ohio face a shortfall of only $1,300. But if the state governments of Indiana and Wisconsin were to subtract their obligations from what they have on hand to pay their bills, they would see a surplus of $4,200 and $1,100 per state taxpayer, respectively. New Jersey and Connecticut by contrast, had the largest shortfalls in the country, each with a per-taxpayer burden of $44,500.

Truth in Accounting suggested several steps states could take to improve their financial standing. State and local governments are exempt from ERISA, a federal law that imposes strict mandates on pension managers. The organization said that state and local governments should abide by those requirements anyway. It also recommended that state and local governments use a technique known as full accrual accounting. This means, as the report put it, “revenues are recorded when earned, and expenses are recorded when incurred, regardless of when cash transactions occur.”

Michigan could face more budgetary challenges were Congress to resume supporting states at pre-pandemic levels, the report said. Michigan would lose about 8% of its budget if the federal government returned its financial support to what it was in 2019, even with an increase for inflation.