US State Governments Face Severe Financial Crises

State governments are facing severe financial challenges, with many lacking funds to meet obligations due to rising pension liabilities and federal aid expiration.

### Financial Crisis in U.S. States: A Looming Budget Disaster
* 💰 State governments in the U.S. are facing severe financial challenges, with **27 states reportedly lacking sufficient funds to meet their obligations**.
* 🏦 Connecticut, New Jersey, and Illinois are among the states most affected, with Illinois grappling with a **significant deficit** while also needing to **bail out essential services** like the Chicago Transit Authority and public schools.
* 📉 After receiving approximately **$800 billion in federal aid** to begin the decade, states are now experiencing tighter budgets as **pandemic-induced surpluses dwindle**.
* 📊 In 2022, federal grants accounted for **38% of state spending**, but this reliance on federal funds raises concerns about **long-term sustainability** as those funds are set to **expire in 2026**.
* 📅 States have enacted tax cuts and increased spending during recent economic booms, but many are now questioning the **affordability of these measures** amidst growing fiscal liabilities, particularly pension obligations that burden states like **Illinois and New Jersey**.
* 💸 Pension liabilities are escalating at a rate of **7% annually**, which significantly restricts funds available for critical public services like **education and healthcare**.
* 🌪 As states prepare for future risks like climate change and an aging population, many are conducting **stress tests to assess financial strength and resilience** against economic downturns.
* 📈 While some states are proactively addressing fiscal challenges, the looming **$1.3 trillion pension debt** across various states poses a **significant threat to their financial stability**.

Why 27 U.S. States Are Going Broke

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Financial Struggles of State Governments in the US

Many US state governments are running out of cash, with 27 states lacking funds to pay their bills, particularly in Connecticut, New Jersey, and Illinois.

The financial crisis is exacerbated by the need to bail out essential services like the Chicago Transit Authority and Public Schools.

Federal aid has been crucial for state budgets, covering 38% of total spending in 2022, but the pandemic's one-time revenue and expenditures have obscured long-term financial challenges.

State Budget Challenges and Pension Liabilities

Federal funds to states will run out by 2026, leading to a cost of living crisis and prompting some leaders to consider tax relief.

States with a limited fiscal footprint, like North Dakota and Idaho, have managed pandemic-era budget surpluses, but many are struggling with long-running financial liabilities and pension obligations.

The unfunded portion of pension liabilities increases by 7% each year, leaving as many as 27 states without enough money to pay their bills and limiting funds for essential public programs.

The Impact of Tax Base Loss and Migration on State Governments

8% of their tax base in the top income bracket, which is significant for overall tax revenues.

Migration to low-income tax states like Florida, Texas, and North Carolina is a growing concern, driven by climate and economic factors.

Florida faces future challenges from Medicaid costs and climate change, with FEMA's disaster response funding potentially becoming a burden on the federal government.

Climate Hazards and State Financial Preparedness

counties are exposed to climate hazards, with extreme heat in the Midwest impacting agriculture and contributing to food inflation.

The market is not currently pricing in climate risks, potentially leading to future financial burdens for state and local governments.

In response, states are conducting stress tests and developing rainy day funds to improve their financial resilience, with varying levels of savings across different states.

Fiscal Sustainability and Climate Resilience in State Budgets

Maryland's 2022 long-term assessment revealed budget gaps, prompting state leaders to raise revenue and cut spending for long-term solutions.

The annual issuance of municipal debt may need to double to $800-$900 billion to adapt public assets in the US to climate hazards.

Investment advisors see public debt as the top economic issue, with Illinois facing significant challenges and a $1.