The fiscal health of America’s most populated cities is under intense scrutiny, with a recent study shedding light on widespread financial vulnerabilities that could signal an imminent crisis for several key urban centers. Conducted by Truth in Accounting, the ‘Financial State of the Cities 2023’ report rigorously examined the tax surpluses and burdens of 75 major U.S. cities, painting a sobering picture of municipal finance. This comprehensive analysis, which defines a city’s tax surplus as total tax revenues divided by residents and a tax burden as the amount needed to clear state debt per resident, revealed critical insights into the underlying economic pressures facing communities nationwide.
Alarmingly, the study found that 50 out of the 75 cities evaluated were unable to pay their bills, accumulating a staggering combined debt of $267 billion. These municipalities, labeled ‘sinkhole’ cities, stand in stark contrast to ‘sunshine’ cities that manage to balance their books. A key concern highlighted by Truth in Accounting is the tendency of elected officials to exclude the true cost of government from current budgets, effectively deferring substantial financial obligations onto future generations of taxpayers. This practice contributes significantly to mounting debt, particularly stemming from underfunded pension obligations and retiree health benefits, which Sheila Weinberg, the group’s founder and CEO, believes is a widespread national issue.
Cities are assigned grades from A to F, with an F grade signifying a per-citizen tax burden exceeding $20,000. The implications of this fiscal distress are far-reaching, potentially leading to a degradation of essential public services, including dirtier streets, reduced library access, and compromised public education. Such outcomes necessitate difficult decisions from public officials striving to balance budgets. This report delves into the specifics of major U.S. cities identified as being in serious danger of bankruptcy, beginning with those facing the most critical F-grade assessments.
1. **New York City – Grade: F**New York City, long recognized as the indispensable financial heart of the U.S. economy, finds itself at the forefront of this fiscal instability, receiving an F grade in the ‘Financial State of the Cities 2023’ study. The city grapples with the highest tax burden of any state, a direct consequence of a substantial backlog in unfunded retirement entitlements and a series of challenging legislative decisions that have accumulated over time. The complexities of New York City’s financial landscape are further underscored by varying figures regarding its public debt; while the city’s Comptroller, Brad Lander, reported a public debt burden of approximately $96 billion in 2024—roughly $30 billion short of the city’s debt limit—Truth in Accounting presents a significantly higher figure.
According to researchers at Truth in Accounting, New York City’s total public debt stood at $177.6 billion at the close of fiscal year 2022, translating into an alarming per capita taxpayer burden of $61,200. This stark discrepancy, as Sheila Weinberg points out, largely stems from pension debt obligations that are often underreported and ultimately transferred to future taxpayers, effectively allowing invoices not included in current balanced budgets to accrue. Despite these daunting figures, city leaders express optimism about future returns, though Comptroller Lander emphasizes the critical need for caution to avoid excessive debt, acknowledging the inherent trade-offs between bond-powered spending and alternative revenue-raising measures like tax increases.
In response to these financial pressures, Mayor Eric Adams introduced a ‘Program to Eliminate the Gap,’ which proposed three distinct 5% city program spending cuts. These cuts were designed to affect a broad range of vital services, including sanitation, library access, public education, and the stewardship of jails. However, in the spring of 2024, Adams partially walked back these proposed cuts, attributing the change to unexpectedly robust economic performance within the city. Despite this temporary reprieve, the Mayor noted in a January 2024 press conference that the city is “not out of the woods,” underscoring the ongoing necessity for further steps to ensure sound financial footing. Michael Rinaldi, a senior director at Fitch Ratings’ public finance group, further warned that if New York City cannot issue debt to finance parts of its capital plan, it could lead to severe consequences such as unsafe school conditions and overcrowding, highlighting the precarious balance the city must maintain between its capital needs and its fiscal capacity.
2. **Chicago, Illinois – Grade: F**Chicago, Illinois, holds the unenviable position of being the second-most in-debt city in America, a ranking that places it firmly within the F-grade category for fiscal health. The city faces a confluence of significant challenges, not only grappling with persistent issues related to crime but also contending with a severe pension-based debt that heavily weighs on its financial stability. The depth of this pension crisis is particularly troubling, as revealed by the fact that in 2022, city officials allocated a mere 25 cents on the dollar for promised pension benefits, a stark indicator of the vast underfunding in this critical area.
This long-standing fiscal strain means Chicago has been under continuous pressure to address its financial health for a considerable period, with the ramifications of its debt profile permeating various aspects of its governance and service delivery. Despite these formidable hurdles, the city has initiated various reforms aimed at mitigating its financial distress. Efforts are actively underway to identify and secure additional revenue sources, crucial for bolstering its strained coffers and addressing the accumulating debt. Concurrently, Chicago has also focused on improving transparency and accountability within its financial dealings, recognizing that such measures are vital for rebuilding public trust and fostering more sustainable fiscal practices in the long term. The continuous struggle to bridge the gap between financial obligations and available resources underscores the precarious position Chicago finds itself in, demanding ongoing vigilance and strategic financial management to avert deeper crises.
3. **Honolulu, Hawaii – Grade: F**Honolulu, Hawaii, is another major U.S. city that received an F grade for its fiscal health, indicating a profound level of financial distress. The city’s tax burden significantly surpasses the critical threshold of $20,000 per taxpayer that defines this lowest grade, with the study revealing that Honolulu would necessitate a formidable $26,100 in tax recoupment from every state citizen to balance its books. This exceptionally high per capita burden highlights the severe imbalance between its financial obligations and its current revenue capabilities, placing substantial pressure on its residents and the city’s overall economic well-being.
Despite a notable reduction in its tax burden compared to 2020—when it was over half a billion dollars higher than its present state—Honolulu concluded the most recent fiscal year with a substantial $3.3 billion deficit. This persistent shortfall underscores the ongoing nature of its financial challenges, preventing the city from achieving fiscal solvency despite some improvements in certain metrics. Ranked as the third most fiscally troubled city out of the 75 examined in the study, Honolulu’s situation serves as a stark reminder that even seemingly prosperous or desirable locations can harbor deep-seated financial vulnerabilities, driven by a complex interplay of spending, revenue, and long-term liabilities.
4. **Portland, Oregon – Grade: F**Portland, Oregon, is another prominent urban center that has been assigned an F grade for its fiscal health, primarily due to a significant debt of $5.2 billion. While this debt figure is substantial, Portland’s larger population provides a degree of mitigation, resulting in a tax burden that is comparatively lower than that of Honolulu. Nevertheless, the F grade unequivocally signals that the city’s financial standing remains critically precarious, indicating a fundamental inability to meet its obligations without imposing an unsustainable burden on its taxpayers.
A particularly concerning aspect of Portland’s fiscal management is its approach to pension benefits. Despite experiencing a short-term boost in the valuation of its pension assets, the city managed to set aside only 44 cents on the dollar for promised pension benefits. This underfunding, though better than some other struggling cities, still represents a significant deficit that contributes to the overall debt and poses a long-term risk to its financial stability. The practice of not fully funding these future obligations creates a cumulative liability that is passed on to future generations, perpetuating the cycle of fiscal strain.
Truth in Accounting’s analysis specifically highlighted Portland as one of the major cities facing considerable fiscal challenges. This designation underscores the systemic issues at play, which extend beyond immediate budgetary concerns to encompass deeper structural imbalances in revenue generation and expenditure. The ongoing need for prudent financial planning and potentially significant reforms will be crucial for Portland to navigate its current fiscal difficulties and move towards a more sustainable financial future.
5. **New Orleans, Louisiana – Grade: F**New Orleans, famously known as ‘The Big Easy,’ unfortunately finds itself deeply entrenched in the dreaded F-zone of fiscal distress, ranking 71st out of the 75 cities included in the study. This low standing in the fiscal report underscores severe underlying financial mismanagement and a failure to adequately prepare for long-term liabilities. The city’s financial woes have been exacerbated by past actions of city officials, who have been explicitly identified as being “guilty of underfunding pension entitlements and reneging on retiree health care pledges.” Such practices represent a significant breach of trust with public employees and retirees, creating a substantial and growing burden on the city’s finances.
Beyond the issues of underfunded entitlements, New Orleans’ fiscal conduct has been further complicated by procedural missteps. The city was among several municipalities that submitted their fiscal reports late, a delay that reportedly “worsened their total debt.” This lack of timely and transparent reporting not only signals potential administrative inefficiencies but also obscures the true extent of the financial problems, making it more challenging to implement timely interventions and corrective measures. The combination of historical underfunding of long-term obligations and contemporary reporting issues paints a bleak picture for New Orleans’ financial outlook, placing it in a highly vulnerable position regarding its ability to sustain essential services and avoid a deeper fiscal crisis.
Following the stark realities faced by America’s top five F-grade cities, the financial narrative extends to other significant urban centers grappling with substantial fiscal challenges, albeit with slightly less immediate per-capita burdens. These cities, while perhaps not at the absolute precipice of an F-grade tax burden, are nonetheless navigating considerable debt and structural issues that demand strategic foresight and robust financial management to prevent deeper crises. Their situations underscore the pervasive nature of fiscal instability across the nation, highlighting that even a ‘D’ grade signals significant underlying vulnerabilities.
6. **Philadelphia, Pennsylvania – Grade: F** Philadelphia, a major metropolitan center, stands as a prime example of a city caught in the F-zone of fiscal health, a classification indicating a per-citizen tax burden exceeding $20,000. Despite a seemingly improved post-pandemic landscape, the city grapples with an almost $12 billion deficit. This substantial shortfall means that, to theoretically balance the municipal ledger, each taxpayer would need to contribute an additional $21,800.
The sheer scale of this deficit underscores the persistent structural issues within Philadelphia’s financial framework. Such a significant financial gap necessitates difficult choices regarding public services and long-term investment, potentially impacting the quality of life for its residents. The city’s designation within the lowest fiscal grade highlights the ongoing pressure on its financial health, even as it navigates economic recovery.
