Hi Bethany,
There are a couple of schools of thought on sub-domain vs folder. One postulates that a sub-domain will be like starting afresh in the eyes of Google, and it will take you months to gain rankings. The other will tell you that going down the folder route, this just benefits from your current structure and you are just creating new pages and won't have to wait to be ranked.
Just so you know, sub-domains no longer take an age to start ranking - it can be a matter of days, but it all depends on what you are wanting to achieve.
That said, unless there was a reason to go down the subdomain route, then I would go with the folder route - it is much more straight forward.
If you are wishing to restructure your site, then just remember to not make the URL's too long; keep them on target and not spammy, but remain descriptive. Something like www.example.com/state/content is absolutely fine and there can be no questions in anyones mind where they are if they see this.
When restructuring, make use of 301 redirects in order to point old pages to the new ones, but never 301 a 301 - this will result in a much greater loss of link juice.
I hope this helps.
-Andy