State governments are required to report their debt in Comprehensive Annual Financial Reports (CAFR), which provide credit rating agencies, municipal bond investors, and policy researchers with crucial and timely information on states’ indebtedness. However, not all state debt is disclosed in CAFR, because states often do not report debt issued by many public authorities in their CAFR. The U.S. Census Bureau’s Annual Survey of State Government Finances provides an alternative, more comprehensive measure of state debt, including all public authorities’ debt, although the survey data are less timely and often published one or two years later than state CAFR. We can observe a gap in reported state debt between the survey and CAFR, which appears large for many states and varies by state and year. Therefore, it is important to understand whether and how economic, fiscal, and political factors affect this disclosure gap. To the best of our knowledge, no papers have examined this research question. This study intends to fill this gap in the literature.

We plan to build a panel data set of 50 states from the early 1990s to 2012. The dependent variable is the gap in real per capita long-term state debt outstanding between the Census Bureau’s survey and CAFR. We use a panel data model with state and year fixed effects to estimate the economic, fiscal, and political influence on the gap measure.

Preliminary results based on the 2003—2011 data show that the gap in disclosed state debt increases with both the unemployment rate and the unexpected state budget deficit. A state also experiences a larger disclosure gap when its government is under one political party’s control than when it has a divided government. These results suggest that state governments may rely more on public authorities to issue state debt when they are under economic and fiscal stress. They may do so either to artificially “improve” their financial condition in CAFR or to avoid the institutional constraints or voters’ resistance to debt issuance during difficult economic and fiscal periods. A politically united government may find it easier to do so than a divided government facing more scrutiny and less cooperation.

This paper suggests that the Governmental Accounting Standards Board (GASB) may consider strengthening their rule in state debt disclosure in CAFR and broadening the debt measure toward the one used by the Census Bureau. This change would help state CAFR to provide more complete and reliable information on state indebtedness to researchers, investors, and rating agencies.