There’s been plenty of news lately about cities going bankrupt. First there was City Falls and now Harrisburg is headed towards bankruptcy, but these aren’t the only cities in trouble. In 2009 and 2010 alone, there have been 15 municipalities in the U.S. that have filed for bankruptcy. So what happens when these cities and municipalities go bankrupt? Does their debt belong to the state? With so many cities going bankrupt, it’s easy to picture how it will slowly rise to become the states’, and then the federal governments’ problem, but while cities and municipalities can file for bankruptcy, states can not.
So what happens when an entire state is insolvent? Believe it or not, there are actually ten states in the U.S. (which account for almost one-third of the population) that are now insolvent.
Which ten states are the worst off?
10. Connecticut is looking at a $3.44 billion deficit beginning next fiscal year. Without major changes to the budget, Connecticut could be $10 billion in the red in only three years.
9. Oregon uses a two-year budget cycle, and their next cycle is looking at a $3.5 billion deficit. They’re hoping to cut costs by giving teachers mandatory pay cuts.
8. Arizona has seen some of the worst of the housing market crisis and is looking at a $1.5 billion deficit. They’ve proposed cutting Medicaid, selling the state’s parks, and cutting the University budget to try to catch up.
7. Nevada will be $3 billion short. State workers will all be receiving a 5% pay cut and there will be a variety of added taxes for citizens to look forward to.
6. Michigan has suffered tremendously from the fall of the automobile industry. Detroit’s unemployment rate is now at 20% and the state is going to have to cut state worker’s salaries and education costs to make up for its $2 billion deficit.
5. Texas is looking at a whopping $27 billion deficit for the next two years. The state is refusing to make tax increases, leaving government agencies and education to take the brunt of the cuts.
4. New York has had a 50% fall in revenue taxes since the recession began, putting them at a $13.5 billion deficit by 2012. The planned education and Medicare cuts are expected to help.
3. New Jersey is looking at a $10.5 billion gap for 2012, thanks to the loss of tax revenue as well as a major loss in revenue from Atlantic City’s struggling Casinos. The state is looking at cutting pension plans and Medicaid.
2. California, who’s become well-known for their financial turmoil, is actually the second most cash-strapped state. With a deficit of $25.4 billion, California is going to have to make major cuts to their health care system, as well as education, welfare, and transportation.
1. Illinois is looking at a $13 billion deficit, nearly half of their annual budget. Drastic measures have been taken, including raising the state income tax by 66% and allowing prisoners out early for lack of funding. Analysts unfortunately don’t see Illinois being able to recover anytime soon, even with these extreme tactics.
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