Beware Default from These 6 Doomed States (Yes, US States)

by Darwin on March 21, 2010

Fortune ran an insightful article on 6 states that are in dire straights given their unsustainable debt load and dim prospects for recovery.  Based on several key metrics, it would be wise to avoid buying municipal bonds or muni bond ETFs that carry a high portion of debt from the states outlined below:

  • California
  • Arizona
  • Michigan
  • Nevada
  • Florida
  • Illinois

It’s really disturbing that it’s come to this and even given the federal aid in various forms (direct, first time home buyer credit, bailouts for autos/homebuilders/unions, stimulus and other redistribution of wealth legislation), something’s going to have to change to reconcile the burgeoning debt load and lack of income to offset obligations.  These states need to either revisit the services they offer and the pension promises they’ve made (and continue to make to new hires) to state employees or they’re going to start to default on promises.  The other option, which is entirely plausible, is a federal bailout of state budgets via federal tax increases (or heck, more debt).  Given the lengths the current and past administration have gone to to undertake more debt, bail out the screwups and have NO plan for “Who Pays”, a federally funded bailout is another option which would obviously further weaken the US Dollar.  But something’s gotta give.

  • Do You Live in a Doomed State?
  • Are you seeing a difference?
  • Cutbacks in services, National Park Closures, State worker Pay Reductions?

Interested in what the impact to Main Street is given the crisis.

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1 Mariusz Skonieczny March 21, 2010 at 6:37 pm

It is very unfortunate that so many states, including the one that I live in (Illinois), are in such terrible shape. I honestly do not see how the situation will get any better. Recently, I watched a documentary on the History channel about the state of our country’s infrastructure. We have so much deferred maintenance that it is mind-boggling. States cannot finance their current operations; how are they going to finance what is actually needed?

2 Evan March 21, 2010 at 8:56 pm

I am scared to see what will happen when the first state gets bailed out. Its going to be crazy! But the state will still be AAA rated up to the night before the bailout

3 Mariusz Skonieczny March 21, 2010 at 9:29 pm

I am with you on that.

4 Kevin March 22, 2010 at 12:14 am

We had a quick back and forth on Twitter about the wretched state of the economy in California- let me say that there is no hope for recovery in the near future because of the state’s inability to make changes that can keep the economy stable for more than one fiscal year. Every year, there are more cuts in social services and education. Once the proudest public school system anywhere in the world, California’s colleges and universities are reeling to budget deficits – forcing huge class cuts, teacher layoffs and furloughs. Even financial aid is held sometimes.

5 Budgeting in the Fun Stuff March 22, 2010 at 9:41 am

We live in Texas, which isn’t on the list, but we don’t seem to be doing so great either.

My husband’s school district has been on a salary freeze for 2 years and it’s looking to continue. They are also laying off hundreds of teachers, increasing class sizes, and thinking about making the librarians handle two schools at once. I don’t see a reduction in other governmental services, but the school systems seem to be going downhill FAST.

6 Daddy Paul March 24, 2010 at 8:48 pm

I live in Michigan and I cannot even guess what the state is going to do. Income tax collections are down almost 50%. Property values are down 50% and with them the taxes are down. I would say real unemployment is 25 to 30 percent. 10% of homes are abandoned. It is ugly.

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