Google says that they are accurate in identifying only about 35% of “local” traffic. This means if you run ads to your local market there is a good chance that 65% of your target audience will never see your ads.
Including your city and state in national ads will also reduce the likelihood of someone outside your area clicking your ad.
Creating a negative words list may sound like a daunting task, but having done this recently the list was surprisingly easy. My list excludes all but Alabama and AL looks like this (edited from the USPO):
-AK
-ALASKA
-AR
-ARIZONA
-ARKANSAS
-AZ
-CA
-CALIFORNIA
-CAROLINA
-CO
-COLORADO
-CONNECTICUT
-CT
-DAKOTA
-DE
-DELAWARE
-FL
-FLORIDA
-GA
-GEORGIA
-HAMPSHIRE
-HAWAII
-HI
-IA
-ID
-IDAHO
-IL
-ILLINOIS
-IN
-INDIANA
-IOWA
-JERSEY
-KANSAS
-KENTUCKY
-KS
-KY
-LA
-LOUISIANA
-MA
-MAINE
-MARYLAND
-MASSACHUSETTS
-MD
-ME
-MEXICO
-MI
-MICHIGAN
-MINNESOTA
-MISSISSIPPI
-MISSOURI
-MN
-MO
-MONTANA
-MS
-MT
-NC
-ND
-NE
-NEBRASKA
-NEVADA
-NH
-NJ
-NM
-NV
-NY
-OH
-OHIO
-OK
-OKLAHOMA
-OR
-OREGON
-PA
-PENNSYLVANIA
-RHODE
-RI
-SC
-SD
-TENNESSEE
-TEXAS
-TN
-TX
-UT
-UTAH
-VA
-VERMONT
-VIRGINIA
-VT
-WA
-WASHINGTON
-WI
-WISCONSIN
-WV
-WY
-WYOMING
-YORK