These 10 states may be closest to financial collapse
Filed under: Economy
When California Treasurer Bill Lockyer sought a $7 billion federal loan guarantee from Treasury Secretary Timothy Geithner in May, it was a clear indication that states, and not just financial institutions, were struggling mightily to find firm fiscal footing in the face of the Great Recession. As states continue to grapple with the current harsh economic conditions, the Pew Center on the States has compiled a list of the 10 that are closest to financial collapse, part of a report on the budgetary health of all 50 states. The report warns of potentially damaging consequences if states fail to take decisive measures to fix their money woes.
While California's economic struggles, such as issuing IOUs to state employees and business contractors, have been well documented, many more states are facing a combination of economic, money-management and political pressures that are driving them to the brink of collapse. The Pew report cites high home foreclosure rates, increasing joblessness, declining state revenues, poor money management, legal and political obstacles to balanced budgets and the size of budget gaps as the six factors that contribute to most of the problems.
The report points out that all states but two -- Montana and North Dakota -- faced budget shortfalls for fiscal year 2010, adding up to an estimated $162 billion in budget gaps. Tax collections in all states declined a record 11.7% from first quarter of 2008 to the first quarter of 2009, and unemployment continued to rise nationally, topping 10% this month.
The Terrible 10
By combining weighted scores for each state's rank in its six contributory factors, Pew created a list of the 10 that are in the highest degree of peril. They are: California, Arizona, Rhode Island, Michigan, Oregon, Nevada, Florida, New Jersey, Illinois and Wisconsin. Close behind those terrible 10 are Colorado, Georgia, Kentucky, New York and Hawaii.
The report also revealed four common problems that hurt the 10 worst states. Several of them are too dependent on a particular industry that has been devastated by the recession, such as gambling in Nevada and tourism in Florida. Many of the states, like California, New Jersey and Illinois, have a long history of borrowing to close budget gaps. Several have legal limitations that prevent them from making adjustments. For example, Oregon has a revenue cap that forces the state to deliver rebates to taxpayers in good times or bad. And most states just put off the tough decisions until it was too late.
Here's the worst-10 list in the order that Pew ranked each state, with highlights of what hurt each one:
California – Budget shortfall: 49.3%
"California topped all states for the magnitude of its budget shortfall in fiscal year 2010, both in dollars and in share -- in this case, nearly half -- of its general funds, which pay for most state operations."
Arizona – Budget shortfall: 41.1%
Like many states, "Arizona's lawmakers relied on one-time fixes to balance its budgets instead of making long-term changes," the report said. Lawmakers were still wrestling with a $1 billion gap in this year's budget in October.
Rhode Island – Budget shortfall: 19.2%
On top of its poor record of fiscal management, "Rhode Island constantly ranks near the top of states with the highest unemployment rates, and last year it had the highest home foreclosure rate in all of New England."
Michigan – Budget shortfall: 12.0%
"Two of the Big Three Detroit-based automakers went bankrupt in 2009, sending shockwaves through a state that is on track to lose a quarter of it jobs this decade."
Nevada – Budget shortfall: 37.8%
"Nevada's unique gaming-based economy is in jeopardy, as is its state budget that relies on gambling sales to provide 60% of its revenues."
Oregon – Budget shortfall: 14.5%
"State revenues plummeted 19% between the first quarter of 2008 and the first quarter of 2009, a reflection of Oregon's heavy reliance on income taxes," the report said. Voters have rejected adding a sales tax nine times, thwarting attempts at creating a new source of state revenue.
Florida – Budget shortfall: 22.8%
"For the first time since World War II, Florida's population is shrinking. This is a disturbing revelation for a state that has built its economy -- and structured its budget -- on the assumption that throngs of new residents will move to its sunny shores each year."
New Jersey – Budget shortfall: 29.9%
"New Jersey is playing catch-up after years of fiscal mismanagement and a daunting structural imbalance between what it collects and what it spends."
Illinois – Budget shortfall: 47.3%
"Since the last recession earlier this decade, the state piled up huge backlogs of Medicaid bills and borrowed money to pay its pension obligations," the report said. The 2010 budget shortfall topped $13.2 billion, among the worst in the nation.
Wisconsin – Budget shortfall: 23.2%
"Wisconsin's history of budget shortfalls and pattern of borrowing frequently to cover operating expenses, among other measures, made it poorly positioned to weather the most recent severe economic downturn."
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Reader Comments (Page 1 of 17)
11-11-2009 @ 1:20PM
Kim said...
...where else in the world can so many people have so much of nothing
Reply
11-11-2009 @ 3:26PM
willi said...
The problem is that these states have been selling 'sizzle' but no 'steak' for years.
11-11-2009 @ 9:06PM
Simzee said...
America is rotting from within. We will soon be very ripe for the selling of this country by our own people. You'll see how greedy it becomes.
11-11-2009 @ 9:13PM
Simzee said...
By the way.....look at what the casinos did for New Jersey. Make your own judgement.
11-11-2009 @ 10:11PM
Truth said...
Hmmm. 9 out of the 10 worst states voted for Barry O. Most of the 10 best didn't. That tells you a lot right there.
11-11-2009 @ 1:30PM
willi said...
Believe it or not, Arkansas is the best state to live in. Low taxes, low cost of living, smaller population and real estate is very reasonable. Aside from all that, Arkansas is the 'Natural State.' Some of the most beautiful country in the USA is in Arkansas. Go see for yourself and you'll be surprized and well rewarded.
Reply
11-11-2009 @ 2:13PM
Fred said...
I have been there and it is fascinating. I drove through the hills and winding roads to get to Mountain Home, which seemed to be a remote area. Without Wal-Mart, America would be lost. But as long as there is a Wal-Mart within 40 miles, order is restored.
11-11-2009 @ 2:27PM
James said...
Arkansas is a joke and just another "welfare" state. Too low taxation leads to low graduation rates. What percentage of Arkansas residents even have a college degree?
11-11-2009 @ 5:03PM
Mike said...
Stay away. Massive influx of hillbillies from California is going to ruin Arkansas like California has been ruined.
11-11-2009 @ 6:15PM
Cali Resident said...
try finding a job there that doesn't require you to maintain farm animals or grow crops..
11-11-2009 @ 9:23PM
Dan said...
Well of course Arkansas. My goodness, it doesn't take a rocket scientist to know that when you have the state with the highest rate of inbreeding and almost everybody is related to each other, what do you expect?
11-12-2009 @ 1:43AM
Sara said...
I live in MO and AR is very cheap to live in, but there is no real culture there. The most culture is Bubba Clinton's library. It is beautiful, but everyone carries a gun and chews tobacco. Parents live vicariously through their childrens who play sports in the local high schools. They keep talking about the new President being from AR and I cringe at the thought. The headquarters for the KKK is in the northern part of the state and so tan or brown people sorta stay away from that part of the state. It is right to work state so workers have no rights what so ever and salaries are very low..
11-12-2009 @ 3:10AM
TW said...
Arkansas sux! High retail prices! Higher taxes on alchohol and tobacco! More speed traps than anywhere in nation!(Just ask truckers!) Outrageous land prices!($250,000 for a lot on Lake Chicot!?!) Rude people!
11-13-2009 @ 1:52AM
Mama n MO said...
Yes, Arkansas is a beautiful state BUT Real Estate taxes are NOT necessarily in line with your glowing remarks. Our taxes in NWA are extremely high. A friend in KC has a high-end home on almost 4 ac., their Real Estate taxes were more than a $1,000. LESS than we owed on our home/lot in the over-rated Pinnacle area of NWA. However, in the poverty stricken areas of the state, taxes MAYBE lower.
If I had my druthers, I'd be in Arkansas...You can take the gurl outta the State of Arkansas, but, you can't take the state of Arkansas outta the gurl....
11-11-2009 @ 1:31PM
ralph said...
typical union states, the same people who got the country into the place its is now financially, conservative states don't leave beyond their means, and of course illegals cost this country 500 billion a year
Reply
11-11-2009 @ 1:37PM
BroccoliofDoom said...
"conservative states don't leave beyond their means"
First I'll be generous and assume you meant 'live' and not 'leave', but what exactly do you base that statement on? I mean I know Wisconsin is a liberal mecca, but... oh wait.
11-11-2009 @ 2:49PM
Kevin said...
James said...
Arkansas is a joke and just another "welfare" state. Too low taxation leads to low graduation rates. What percentage of Arkansas residents even have a college degree?>>>I'm not sure, but, one of its most famous residents, or former resident, holds the title of Rhodes Scholar!
11-11-2009 @ 9:20PM
undrgrndgirl said...
no "conservative" states live off "liberal" states like california, new york and massachusetts...california for example pays TWICE as much IN to federal coffers as it gets back...okalhoma on the other takes TWICE as much OUT...as a native californian i'd like california to secede and keep OUR money HERE!! (california is the WORLD's 7th or 8th largest economy - the rest of the u.s. is a welfare burden on california)
11-11-2009 @ 9:27PM
Dan said...
Over half those states listed are among the most conservative states around. Arizona and Florida especially. What the heck are you smoking?
11-11-2009 @ 11:29PM
NVResident said...
I watched California dying under the weight of illegals. Moved to Nevada and am seeing the same thing happen here. SOMEBODY PLEASE GET THEM OUT OF HERE!!!!