Could be a number of things. Perhaps your server had a problem and files became corrupted?
Perhaps you installed an addon that adjusted the way the templates for that part of the code works.
That whole state-dropdown/input section was overhauled in v1.3.6.
Would be better to spend time upgrading than to try to fix code that was buggy in the first place.
Try setting up a fresh v1.3.7 and making sure it works as desired. Then apply your customizations. Then upgrade your database. Detailed upgrade instructions are in the /docs folder of the downloaded Zen Cart zip.
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