'Tremendous challenges going forward': Over half of US states are bleeding cash and going broke, researchers say — here's why and what it means for you

Federal aid

Some states suffer from budgeting problems that were previously masked by federal assistance during the COVID-19 pandemic, according to The Pew Charitable Trusts.

During the pandemic, the federal government significantly stepped up the money it was giving to states, totaling $800-plus billion, per the organization. This made it affordable for states to cut taxes and increase spending for a time.

"What we're seeing is largely a return to Earth from those pandemic surpluses," Justin Theal, a senior officer with The Pew Charitable Trusts, told CNBC. "A huge looming question out there is around the long-term affordability of the tax cuts and spending increases that were enacted."

The federal funds will dry up in 2026, according to the broadcaster, as much of the country is being hit by a cost-of-living crisis. Some state leaders are considering tax relief for this reason, which means some government programs could face big cuts.

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State pensions

The largest contributor to state debt at the end of fiscal year 2023 was unfunded retirement liabilities, Truth in Accounting reports. Around 86% of state and local government workers had access to a pension plan as of March 2022, according to the Bureau of Labor Statistics.

Pensions are far less common in the private sector, but remain a common feature in public service.

"What goes a little bit under the radar is that pension liabilities are an extremely expensive form of debt," Giesecke said.

This debt results in less money to fund public programs and infrastructure projects.

What does this mean for you?

As states face a decline in federal support, there's a very real chance they're going to need to make some big changes to try to get onto more stable financial footing. This could mean:

• You'll see an increase in your taxes
• You may see a decline in public services
• The government may cut down on benefits

You may need to adjust your budget to account for any changes that come, or consider moving to a state that has its finances in order. Migration from high-tax to low-tax states is already happening, and this may only increase in the coming years as some states with the deepest financial shortfalls are already some of the highest-taxed in the nation. Otherwise, you can try to vote in lawmakers who have financial policies you can get behind

States may also try to turn to the federal government to ask for more help, but it's uncertain how keen the administration would be to grant any requests.