The financial well-being of America’s largest cities is under a microscope, as a new study reveals widespread economic weaknesses that could be a prelude to a crisis in several major urban areas. The ‘Financial State of the Cities 2023’ report from Truth in Accounting meticulously examined the tax revenues and debts of 75 major U.S. cities, presenting a stark reality of municipal finances.
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.
New York City’s debt reached a staggering $177.6 billion by the end of fiscal year 2022, translating to a per-person taxpayer burden of $61,200, as reported by Truth in Accounting researchers. This massive debt, as noted by Sheila Weinberg, is largely due to underreported pension obligations that future taxpayers will have to cover, essentially allowing debts outside of current budgets to accumulate. While city leaders are optimistic about future earnings, Comptroller Lander stresses the importance of careful debt management, acknowledging the difficult choices between debt-financed spending and increasing taxes.
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, unfortunately earns an F grade for its fiscal health, making it the second most indebted city in the nation. The city is not only battling crime issues but also a crushing pension debt that severely impacts its financial stability. The severity of this pension crisis is evident when considering that in 2022, city officials only allocated about 25 cents for every dollar of promised pension benefits, highlighting a massive underfunding.
This prolonged financial strain has put Chicago under constant pressure to improve its economic situation, with its debt profile affecting many areas of its governance and public services. Despite these significant obstacles, the city has implemented various reforms to ease its financial burdens, actively seeking new revenue streams to bolster its finances and manage its growing debt. Furthermore, Chicago is focusing on enhancing financial transparency and accountability, recognizing their importance in restoring public trust and establishing more sustainable financial practices for the future. The ongoing effort to balance financial obligations with available resources underscores Chicago’s delicate financial position, requiring continuous diligence and strategic financial management to prevent further crises.
3.Honolulu, Hawaii, also received an F grade for its fiscal health, signaling deep financial distress. The city’s tax burden per taxpayer is well over the $20,000 mark, which defines this lowest grade, with the study indicating that Honolulu would need to collect an additional $26,100 from every resident to balance its budget. This extremely high per capita debt highlights a severe mismatch between its financial responsibilities and its current income, placing immense pressure on its residents and the city’s overall economy.
Even with a reduction in its tax burden since 2020, when it was over half a billion dollars higher, Honolulu ended the last fiscal year with a significant $3.3 billion deficit, demonstrating that its financial challenges are ongoing and preventing true fiscal solvency despite some positive changes. Ranked as the third most financially troubled city among the 75 analyzed, Honolulu’s situation serves as a critical reminder that even attractive and seemingly prosperous cities can face profound financial difficulties due to a complex mix of spending habits, revenue streams, and long-term liabilities.
4.Portland, Oregon, is another major city given an F grade for its fiscal health, primarily because of a substantial $5.2 billion debt. While this debt is significant, Portland’s larger population means its tax burden is relatively lower than Honolulu’s. Nevertheless, the F grade clearly indicates that the city’s financial situation remains critically unstable, suggesting it cannot meet its obligations without placing an unfair burden on its taxpayers.
A particularly worrying aspect of Portland’s financial management is its approach to pension obligations. Despite a temporary increase in the value of its pension assets, the city only set aside 44 cents for every dollar of promised pension benefits. This underfunding, while better than some other cities, still represents a considerable gap that adds to the overall debt and poses a long-term risk to its financial stability, passing on this accumulating liability to future generations.
The Truth in Accounting analysis specifically identified Portland as one of the major cities facing significant financial challenges, highlighting systemic issues that go beyond short-term budget problems to include deeper structural imbalances in how it generates revenue and spends money. The continuous need for careful financial planning and potentially major reforms will be essential for Portland to overcome its current fiscal difficulties and move towards a more stable 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, is a prime example of a major city struggling with its fiscal health, earning an F grade because its per-citizen tax burden exceeds $20,000. Despite a seemingly improved post-pandemic economy, the city faces an almost $12 billion deficit, meaning that each taxpayer would theoretically need to contribute an additional $21,800 to balance the city’s books.
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.
