Budget Nightmare: 10 Most Broke States

To help close the budget gap, the state is looking at decreasing teacher pay by 4 percent and giving state employees 12 unpaid furlough days, the equivalent of a 4.6 percent pay cut. Lawmakers are considering raising some taxes -- for instance the tax on cigarettes could go from 80 cents a pack to $1.80 -- but Gov. Jim Gibbons has threatened to veto any new taxes proposed by the legislature. That includes cigarette, liquor and mining taxes.

To help close the gap, the governor has ordered cuts to education, including delaying an all-day kindergarten expansion and eliminating funds for gifted and talented programs and a magnet program for students who are deaf or hard of hearing.

Illinois: $9.2 billion or 33 percent of its budget

Last week, Gov. Pat Quinn vetoed a budget proposal that would taken away $5 billion in federal funds from social services for the poor and homeless. However, the state still does not have a budget in place even though the new fiscal year began on July 1.

Quinn, who replaced ousted governor Rod Blagojevich only six months ago, has stated he will veto any other budget proposal that does not call for a tax increase. Even with the 50 percent income tax hike that Quinn has proposed, the governor's administration will carry out $1 billion worth of budget cuts that amount.

These include a $185 million cut in state operations, a $140 million cut in health insurance, $175 million cut in education and $283 million cut in the Department of Human Services. More than 2,500 state workers may lose their jobs and those who stay may be required to work 12 unpaid furlough days.

Wall Street's Woes

New York: $17.9 billion or 32 percent of its budget

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.

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

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