Red Ink from Sea to Shining Sea

Europe has Greece. The U.S. has California, Illinois, Nevada, and other states in various stages of fiscal crisis. The likelihood of a state default appears remote. Still, investors are worried, judging by the credit-default swap market, where the cost of insuring state debt is going up. The numbers for each state below show the cost to investors to insure $10 million in debt. As of May 25, California leads the nation with a $272,400 tab for credit insurance on its debt. Here are the six most troubled states.

California, 272.4

Republican Governor Arnold Schwarzenegger is seeking a new round of budget cuts to close a $19 billion gap for the year starting July 1. He has vowed not to raise taxes. State Democrats are opposed to dismantling a welfare program for families, and a plan to cut wages for state workers by 10% has unions up in arms.

Illinois, 237.3

Legislators appeared on the verge of finalizing a budget on May 26. Most of the debate centered around whether the state should borrow $37 billion to make its annual contribution to the state pension system. Democratic Governor Pat Quinn failed in his quest to raise taxes, a move he says is critical to righting state finances.

Nevada, 210.7

The budget Nevada's legislature approved in late February aims to wipe out an $887 million deficit. But the revenue assumptions in that document look suspect, considering that the local economy is still not in recovery mode. Nevada is the only one of the 50 states whose economic indicators continue to trend downward.

New Jersey, 207.4

With a July 1 budget deadline looming, Republican Governor Chris Christie and the Democratic-controlled legislature remain far apart on a plan to bridge a roughly $11 billion shortfall. The latest scuffle was over a proposed income-tax increase on residents earning at least $1 million, which Christie vetoed on May 21.

Michigan, 207.0

Michigan is expected to close out its fiscal year with a deficit as high as $500 million. The Democratic-led House and Republican-run Senate are at odds over proposals to cut aid to public universities and reduce spending on community health programs. But with an Oct. 1 deadline for a new budget, they still have time to hammer out a deal.

New York, 203.8

Its Apr. 1 budget deadline long past, New York's dysfunctional legislature remains divided over a $9.2 billion deficit. Democratic Governor David Paterson says he's "virulently opposed" to issuing new debt to close the gap, though he may cave in the face of resistance from public sector unions to education and health-care cuts.

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