Budget Nightmare: 10 Most Broke States

Wall Street's Woes

Home to Wall Street, New York state has seen its personal income tax collections fall a whopping 48.9 percent in the last year, according to the National Conference of State Legislatures. When Wall Street started laying off workers and slashing multi-million dollar bonuses, the state's coffers felt the impact.

Although a divided state Senate in Albany enters its fifth week of a budget stalemate, New York's struggle to close the budget gap has dragged on for several months.

The state legislature passed a $131 billion spending plan at the start of its fiscal year, which began on April 1.

The gap there was cut, in large part, due to income tax hikes on the state's richest citizens.

For households with taxable income above $500,000, the tax rate went from 6.85 percent to 8.97 percent. For those earning above $200,000 to $300,000 – depending on filing status – but less than $500,000, the rate jumped from 6.85 percent to 7.85 percent.

Related

Business News: Sign Up for MONEYScope E-Mails

In addition, New York placed limits on itemized state income tax deductions for taxpayers making over $1 million and reduced a state-funded credit on New York City's personal income tax. The changes are projected to raise more than $5 billion a year.

But that won't be enough. Gov. David Paterson has proposed a $698 million reduction in school funding, $3.5 billion cuts in healthcare services and layoffs for more than 500 state government workers. To further help balance budgets, tuition at public universities also increased.

Alaska: $1.35 billion shortfall or 30 percent of its budget

The county's most-remote state had a shockingly large shortfall this year for one simple reason: oil prices plunged. Alaskans pay no state sales tax or state income tax. In fact, the state pays every man, woman and child who has lived there at least a year money to, well, live there. The so-called Permanent Fund paid $3,269 from oil taxes and royalties to the 610,768 residents who qualified last year.

But signs are showing that the fund isn't so permanent. Oil production in Alaska has declined by 64 percent since 1988 but had very little impact on the state's budget because at the same time the price of each barrel of oil has shot up significantly. Then came the global recession. Oil prices fell from more than $140 a barrel last summer to about $30 this winter before climbing back up to $64 a barrel today.

That drop caused the state's corporate taxes -- essentially all oil money -- to fall 32 percent compared to last year, creating a rare budget problem for Alaska. The state easily solved it this year by taking money out of flush reserve funds, built up during oil boom years. But many state watchers questioned the future of Alaska's ability to fund its services and continue its annual Permanent Fund payments to residents.

That's one problem Gov. Sarah Palin won't have to deal with. She's announced her resignation from the job.

New Jersey: $8.8 billion or 30 percent of its budget

The Garden State has seen a double-whammy of problems from a drop in Wall Street salaries and also a fall in gambling revenues in Atlantic City. To close the gap, the state eliminated 2,000 jobs by encouraging early retirement, leaving vacancies unfilled and laying off staff. About $325 million will be saved through wage freezes and furloughs, although unions have yet to formally sign on to the plan.

The state is also skipping making a $940 million payment to its pension fund. The money will have to be made up at some point and the longer the state waits, the larger the repayment will have to be.

New Jersey also raised about $1.2 billion in new taxes, mostly from tax filers earning $400,000 or more. It also scaled back and eliminated property tax rebates for people earning $150,000 or more.

The state also increased so-called sin taxes on cigarettes, lottery winnings larger than $10,000 and alcohol, except beer.