Study Flags Severe Fiscal Stress in Major U.S. Cities, States, and Counties

A landmark financial health assessment of America's state and local governments reveals a landscape of stark contrasts, where severe fiscal stress in several high-profile jurisdictions threatens public services and looms over taxpayers. The analysis by the Reason Foundation, applying eight standardized metrics to the audited reports of more than 20,000 entities, identifies concerning structural weaknesses through a system of "red flags" for long-term solvency and short-term liquidity. At the state level, a clear regional pattern emerges, with Northeastern and Pacific states bearing the heaviest burdens. New Jersey stands as the most distressed, triggering six red flags due to deeply negative net positions and critically low cash reserves. Connecticut follows with four flags and the highest per-capita debt. California, Illinois, Hawaii, Massachusetts, and North Dakota each show three flags, driven by massive long-term obligations. In contrast, nearly half of all states—23 in total—registered zero red flags, indicating sound fiscal management. The distress is acutely concentrated in major urban centers and their surrounding counties. The cities of Chicago and New York are among the most concerning, each raising red flags on seven out of eight metrics. These jurisdictions grapple with extraordinarily high debt, negative net positions, and precarious cash, limiting their ability to weather economic shocks. Among the nation’s 100 most populous counties, Nassau County, New York, and Miami-Dade County, Florida, lead with five red flags each. Fiscal stress is pervasive in large school districts, with only two of the top 100 districts showing zero flags. Despite these alarming trends, the data underscores that prudent management is achievable. Many large cities, counties, and states operate with few or no warning signs, demonstrating that disciplined budgeting and proactive reserve-building can sustain services. The report serves as a critical tool for policymakers and residents to demand accountability and structural reforms, emphasizing that sustainable public finance is a deliberate choice, not an accident.