States May Face Their Own ‘Fiscal Cliff’ Soon Enough

Already, states are being forced to make cuts. As Spencer Michels documented, there are are already cuts being made to the University of California system, which lost $750 million from the state in the past year. But task force members say there’s much worse to come.


In March, thousands of students converged on Sacramento to protest budget cuts and fee hikes for the University of California system.

Undoubtedly, the debate over the federal debt will continue to consume much of the political oxygen as we head into the fall elections. But there’s another looming problem that is much less discussed: a simmering budget crisis facing some of our most populous states.

Consider some of the numbers:

More than $1 trillion in unfunded obligations for retiree health benefits for state and local governments.

More than $3 trillion in underfunded pension obligations.

A decline in revenues from sales taxes by 37% over the last four decades.

The growth in Medicaid spending is now surpassing K-12 education as the largest area of state spending.

Those issues and many more are the focus of a new report of a task force looking at state budget crises, chaired by former Federal Reserve Chairman Paul Volcker and former New York State lieutenant governor Richard Ravitch. The report looks up close at the finances of six of the biggest states — California, Illinois, New York, New Jersey, Texas and Virginia — and finds a perilous situation in the making.

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