America's 5 Worst Deadbeat States

Deficits and unemployment have five states facing frightening fiscal crises.

February 16, 2010, 5:21 PM

Feb. 17, 2010— -- If global markets ever get tired of fretting over the debt situation in Europe there's certainly no shortage of cash-strapped government entities in the United States that give cause for concern.

Setting aside the exploding federal deficit situation, set out to take a close look at the 50 states from a variety of economic and demographic factors, including total population, projected 2010 budget deficits, credit ratings, foreclosure rates, energy costs, total outstanding debt and unemployment.

Here are the five states spiraling most dangerously toward insolvency:

With a fiscal year 2010 budget gap of nearly $52 billion, or 56 percent of its total general budget, California is hands down the poster child of fiscally imperiled states. It also enjoys the dubious distinction of having the single worst credit rating (A-) of any of the 50 states, as measured by Standard & Poor's.

Factor in an above-the-national-average unemployment rate of 12.4 percent, severe political dysfunction – a two-thirds majority is required to pass a budget, making any semblance of shared political sacrifice practically a nonstarter – as well as the fact that California consumes three times more energy than it produces, and it becomes painfully clear that the Golden State is hurtling toward a very dark place.

"It's revealing, and probably not a coincidence, that the states in the most trouble are the ones that have energy-consuming populations that dwarf the energy the states are able to produce," said Gregor Macdonald of and an Amherst, Mass.-based energy sector analyst and noted financial blogger.

California also has the country's second largest food stamp program, pointed out Elizabeth McNichol, a senior fellow at the Center on Budget and Policy Priorities.

"The recession is causing state and local tax revenues to fall steeply at the same time that high unemployment and rising poverty are increasing the need for state services such as Medicaid and other programs that serve the poor and near-poor," McNichol said. "The change in the number of food stamp recipients is the single best early warning measure of what is happening to poverty in a state."

Ill in Illinois

By most measures, Illinois has a troubling financial outlook. It has a $14.3 billion budget deficit, which amounts to 41 percent of its total budget, as well as double-digit unemployment. Illinois also has the second lowest S&P credit rating behind California.

Earlier this year a group of Chicago-based civic leaders created a Web site,, to raise awareness and keep a running tally on the state's total debt which is expected to reach $130 billion by July. The state, according to the site, spends $3 for every $2 it takes in. Much of the debt is related to pension and health care benefits for state retirees.

No state with a population as large as Florida's (at 18.5 million people) has a foreclosure rate as high as the Sunshine State. At 2.7 percent, it is twice the national average, according to the Mortgage Bankers Association's National Delinquency Survey.

Florida is also one of seven states with no personal income tax. No surprise then that Florida was named to last year's "10 most troubled states" list compiled by the Pew Center on the States, an organization funded by Pew Charitable Trusts.

Florida's state budget expanded dramatically during the housing boom and despite efforts to sock cash away during flush times, it is having enormous difficulty trying to meet expenses and bracing for an expected budget shortfall in 2011 of as high as $2.6 billion, the Pew study said. For a state whose booming economy, conservative budget practices and a constitutionally mandated reserves policy kept it out of trouble for roughly the past half century, Florida is in "uncharted territory," the Pew study said.

Florida once added as many as half a million new residents a year; between April 2008 and April 2009, Florida actually saw its population shrink by 58,000 people. Florida also consumes eight times the amount of energy it is able to produce, according to

New York State of Bind

The Empire State faces a $21 billion budget deficit this fiscal year which ends in April. To put that in perspective, that is 38 percent of New York's total budget. Only California has a higher absolute dollar deficit figure weighing it down, and only four states (California, Arizona, Nevada and Illinois) have larger gaps when measured as a percentage of total budget. The state has historically relied heavily upon revenues from taxes on bonuses paid out by Wall Street firms, in some years accounting for nearly one-fifth of the total budget. The collapse of several Wall Street firms, along with a backlash against financial industry pay in general, is expected to put the state in a severe bind. As state legislatures go, Albany gives Sacramento a run for its (ability to mismanage) money.

Detroit's auto woes have pushed Michigan's unemployment level to 14.6 percent, the highest in the country. The eighth most populated state, Michigan has been forced to partially shut down state government functions twice in the past two years as lawmakers failed to agree on a budget, according to the Pew's study. It currently faces a $2.8 billion budget gap.

When the federal Bureau of Economic Analysis releases finalized 2009 data, Michigan is expected to be among the 10 poorest states, according to Donald Grimes, a senior research specialist at the University of Michigan.

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