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The 10 States With the Most Trouble Paying Their Bills

North Carolina State CapitolBalancing the budget isn't just a federal problem -- it's a state one as well. The Great Recession resulted in some of the lowest state revenues in years, and some of the biggest budget shortfalls of all time. According to a report on state budgets by the Center for Budget Policy Priorities, dozens of states faced shortages of hundreds of millions -- or even billions -- of dollars.

24/7 Wall St. examined the 10 states that had budget shortfalls of 27% or more of their general funds for fiscal year 2011 -- the states that were short the most money before they balanced their budgets. For the most part, those with the worst budget gaps also had among the most anemic economies. And because of their budget problems, all of them have been forced to make dramatic cuts to government services.

Every state but Vermont is required by its own laws to balance its budget each year. In order to do so recently, governments have had to take extreme measures, instituting deep cuts that hurt wide array of their residents. In the 2011 fiscal year, 29 states made cuts to services for the disabled and elderly, 34 reduced funds for K-12 and early education, and all but six states reduced positions, benefits or wages of government employees.

The housing crisis was one of the primary causes for many of the largest budget deficits. Sick housing markets weaken the economy and lower tax bases, which hurts state revenues. So it's no surprise that states such as Nevada, Illinois and Arizona -- which saw some of the worst real estate declines -- made the list. Home values in Nevada led the nation in declines between 2006 and 2010. Home values in Arizona decreased the fifth-largest amount over that same period.

More generally, weak state economies contributed to falling revenues and rising budget shortfalls: States with slower-growing economies tended to have a larger budget gaps. And although the GDP of every state in the nation grew between 2006 and 2010, seven of the 10 states on this list were among the 15 with the smallest increases.

But those generalizations don't tell the whole story: In four of the 10 states, home values actually rose between 2006 and 2010. Similarly, other states with budget shortfalls weathered the recession relatively well and managed to maintain fairly healthy economies. In Washington state, for example, the median income rose 5.8%, the 16th-most in the country, while GDP increased 13.4%, the 12th most.



-- Michael B. Sauter, Charles B. Stockdale, Ashley C. Allen


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