With Some States in Trouble, Be Careful About Worst States to Retire

Deciding which state you ought to retire to is hard enough. First you have to find the right climate, tax structure, environment, culture, crime, etc. But with the economic recession of the last few years another factor enters in - is your state in financial trouble so deep it might not be able to dig itself out (think worst states to retire)? The Pew Center on the States issued a report last week that should be enough to give you pause before you move to a new state, and might even convince you to move out of others.

The Pew Center named 9 troubled states in addition to California in its report, “Beyond California: States in Fiscal Peril”.

The top 10 Troubled States in the report are:
- California
- Arizona
- Florida
- Illinois
- Michigan
- Nevada
- New Jersey
- Oregon
- Rhode Island
- Wisconsin

These states’ budget troubles can have significant repercussions for retirees as well as general residents. Everyone in an affected state will be displeased to see higher taxes or fees; layoffs or furloughs of state workers; longer waits for public services; more crowded classrooms; higher college tuition, and less support for the poor or unemployed. But retirees could also see reductions of favorable treatment for retirees (such as property tax or income tax relief) as well as declining property values. Intergenerational strife is another possibility, as young families and seniors square off over education budgets.

California appears to be teetering on insolvency at times. “But while California often takes the spotlight, other states are facing hardships just as daunting,” said Susan Urahn, managing director of the Pew Center on the States. “Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers.”

In the report, Pew’s researchers identified factors that have contributed significantly to California’s difficulties, then determined the degree to which other states are experiencing the same challenges. These factors are: (1) loss of state revenues; (2) the relative size of budget gaps; (3) increasing joblessness; (4) high foreclosure rates; (5) legal obstacles to balanced budgets—specifically, a supermajority requirement for tax increases or budget bills and (6) poor money-management practices.

While the rest of the states share important characteristics with California, they may not be destined to follow in the Golden State’s footsteps. Some of these states already have responded aggressively to their budget crisis, although it is too soon to tell whether their actions will put them on solid fiscal footing.

“The 10 states are hardly the only ones at risk in this time of record-setting revenue drops, high unemployment and far-flung fallout from the housing bust and credit crisis. Virtually all states have been stressed by the downturn,” Urahn said. “We expect that when state lawmakers next spring turn to crafting their new budgets for 2011, many will confront an even tougher set of challenges. States already have made significant cuts, revenues continue to drop, and stimulus funds will be running out. ”

The Pew Center identified 4 trends running through the economic troubles of these 10 states:
- Unbalanced economies
- Revenues and expenditures out of alignment
- Limited ability to act.
- Putting off tough decisions

States’ fiscal situations are widely expected to get worse even if the national economy starts to recover. At the end of 2010, federal stimulus money that helped states meet some of their expenses will begin to run out.

Bottom line: The Pew Center emphasizes that some of the 10 states are making moves to solve their problems. There are plenty of other states that are also in trouble, and they might not be working on their problems. The point is that you should think twice about the state you might be considering moving to. Keep tabs on their fiscal health to make sure they are headed in a positive direction. If they are not, maybe you should reconsider moving there. Likewise if you live in a state with problems and were already thinking about moving out - maybe this is a good time.
For more information:
Read the full Pew report