Will States Default on Their Debt?

Source: Mark Muro, Brookings Institution, Metropolitan Policy Program, January 18, 2011

Will states soon begin defaulting on their debts, with further negative implications for localities and U.S. metropolitan areas?

More people are beginning to ask that question, and it’s a natural one given the genuinely disturbing state budget conditions my group has been anatomizing out West in California, Arizona, and Nevada and that others have described elsewhere.

These conditions–which find states like Arizona and California contending with both massive “cyclical” and “structural” shortfalls that amount to 33 and 21 percent, respectively, of annual stable expenditures–are truly hard to conceive of. But as it happens default is becoming more thinkable.

Leave a Reply