Which US states are closest to going broke?

States run budgets just like households do, only with billions of dollars and millions of people depending on them. When a state promises more than it saves, the bill doesn't disappear. It grows.

The pension problem

Most states promise teachers, police officers and other public workers a pension when they retire. To pay for it, the state is supposed to set money aside every year and invest it. Many states skipped payments or assumed their investments would earn more than they did. The gap between what's been promised and what's been saved is called an unfunded liability, and in some states it's measured in tens of billions of dollars.

The five states under the most pressure

1. Kentucky has some of the worst-funded pension systems in the country, and slow economic growth makes the gap harder to close.
2. Connecticut is one of the richest states per person, but it carries heavy pension and retiree healthcare debts. It has used recent budget surpluses to pay down a large chunk of them.
3. New Jersey shorted its pension payments for years. It has made full payments recently, but its long-term debt is still among the deepest in the country.
4. California gets much of its income tax from high earners and stock market gains, so its revenue rises and falls with the market. When stocks drop, big deficits can appear quickly.
5. Illinois has the largest pension hole of any state, well over $100 billion. Its credit rating fell close to "junk" around 2017, although it has been upgraded several times since 2021.

Where geography comes in

A state's tax base is its people. Illinois, New Jersey and Connecticut have all seen more residents move out to other states than move in, often to the cheaper, warmer South. Every family that leaves takes its taxes with it, while the pension bills stay put.

Sources: Pew Charitable Trusts state pension funding data; state comptroller and treasury reports; Moody's and S&P rating announcements; US Census Bureau migration estimates.