Study: Chicago and New York City are the most fiscally stressed cities in the nation

Two of America’s largest cities, Chicago and New York, each trigger seven of eight red flags in key metrics used to evaluate financial stress of governments, a new Reason Foundation study finds. New York City and Chicago have the most red flags of any large local governments in America, indicating extreme fiscal stress in both the short and long term. Chicago nearly triggered all eight red flags and is the epicenter of fiscal stress among America’s local governments.

Baltimore, Buffalo, Honolulu, and Toledo, Ohio, have five red flags.

Reason Foundation finds 13 cities have four red flags: Austin, El Paso, Houston, Laredo, Lubbock, San Antonio, Cincinnati, Louisville, Milwaukee, Nashville, Omaha, Phoenix, and St. Louis.

By contrast, 42 of America’s 100 largest cities trigger one or fewer red flags, the report shows.

Although Chicago and New York take the headlines, it’s not clear that extremely large cities must be heavily indebted. For instance, the nation’s second-largest city, Los Angeles, displays just two red flags, Reason Foundation finds. San Diego, the eighth-largest city, displays only one red flag.

Among America’s 100 most populous cities, the aggregate liabilities amount to at least $902 billion, according to their annual financial reports, Reason Foundation finds. This figure is understated because some large cities (e.g., Newark, N.J.) fail to accrue all liabilities and disclose them correctly on their balance sheet.

These cities collectively manage an extraordinarily broad array of public services and infrastructure: full-service police and fire departments, water supply and wastewater treatment systems, solid waste collection and disposal, street maintenance and traffic management, public transportation in many cases, parks and recreation facilities, public libraries, economic development initiatives, housing and community development programs, emergency medical services, public health departments, and zoning and building regulation.

The populations of the 100 largest cities range from approximately 227,000 in Richmond, Virginia to 8.8 million in New York City.

Large cities have a mixed track record of delivering these services while managing their financial position.

This report delivers an objective analysis of financial health across America’s largest state and local governments. Using Reason Foundation’s unique database, compiled from the audited annual comprehensive financial reports of more than 20,000 local government entities, the analysis applies eight standardized financial metrics to assess both long-term solvency and short-term liquidity. Entities that exceed the objective standard on any metric are awarded a “red flag,” indicating a concerning trend.

A single red flag does not necessarily signal an immediate fiscal crisis, but each one points to structural weaknesses that deserve urgent attention.

A combination of multiple red flags may indicate an entity is in a precarious financial position in both the short and long term.

These eight objective metrics include:

Long-term indicators

• Debt Ratio (total liabilities ÷ total assets): Entities should not hold more debt than assets.
• Unrestricted Net Position: Negative values indicate insufficient discretionary resources.
• Revenues Less Expenditures: Spending in excess of revenues leads to a deterioration of the balance sheet.
• Liabilities per Capita: Liabilities exceeding $10,000 per resident (or $20,000 per student for school districts) become increasingly difficult for taxpayers to service.

Short-term indicators

• Quick Ratio: Entities should hold at least enough liquid assets to cover bills scheduled to fall due over the next year.
• Quality of Receivables: If receivables are valued at greater than 30% of annual revenues, the entity may be experiencing difficulty collecting its assessments.
• Cash as Percentage of Assets: Holding less than 10% of assets as cash leaves governments vulnerable to cash crunches.
• Solvency Ratio (liabilities ÷ annual revenues): If liabilities are greater than double annual revenues, the entity’s ability to issue new debt may be limited, and taxpayers may have difficulty servicing debt.

The two cities, Chicago and New York City, exhibiting extreme fiscal stress (seven red flags each)

Chicago stands out as the single most stressed major city in America because it narrowly misses triggering all eight possible red flags. At the close of the 2023 fiscal year, Chicago’s financial reports indicate a quick ratio of 1.01—indicating the city held just 1% more cash and receivables combined than current liabilities.

On every other metric, Chicago displays very alarming trends. The city owes $77.0 billion in total liabilities but holds just $49.8 billion in assets. Chicago’s liabilities are 5.12 times greater than its total revenues of $15.0 billion. After accounting for restrictions on the use of its assets, its unrestricted net position is deeply negative, at -$38.2 billion.

On a per-capita basis, Chicago’s liabilities amount to $28,042. Its position deteriorated over the course of the year, as it was one of only four of the 100 most populous cities to spend in excess of its revenues, generating an annual loss of -$580 million.

Chicago was also very illiquid at the close of FY23, with cash accounting for only 5.9% of its assets. Among the city’s reported assets, $5.5 billion is held as receivables. That equates to 36.5% of its annual revenue—indicating the city is having difficulty collecting on its receivables and that these reported assets could be at risk of impairment.

On both short- and long-term metrics, Chicago is the current epicenter of fiscal stress among America’s largest local governments.

New York City ranks a close second and also displays seven flags. New York City ran a comfortable surplus in FY23, spending $3.5 billion less than revenues—or $394 per capita —but shows red flags on all other metrics.

Although New York is the nation’s largest city, its total debt load amounts to $315.9 billion, or $35,877 per capita—the second largest among the nation’s most populous cities. The city holds twice as many liabilities as assets, which
amount to only $156.6 billion.

After considering restrictions on the use of some assets, its unrestricted net position is staggeringly negative at -$188.6 billion. The city’s debt amounts to 2.86 times its FY23 revenue of $110.3 billion. Short-term metrics also call into question the city’s ability to service its debts as they fall due.

Slightly less than 10% of the city’s assets are held as cash, and cash and receivables together amount to only 98% of current liabilities. Moreover, those $37.2 billion in receivables represent more than four months of revenue, suggesting the city may be struggling to collect them.

A potential silver lining for New York City residents is that no overlapping county governments or separate school districts add additional layers of debt. Though each of the five boroughs is technically a county, they are consolidated into a city government, which also manages its public schools directly.

Cities with high stress levels (four and five red flags)

Buffalo, New York, triggers five red flags.

At the close of FY23, Buffalo owed $2.47 billion in total liabilities but held only $1.74 billion in assets. Its liabilities are 3.29 times greater than its total revenues of $751 million. After accounting for restrictions on the use of its assets, its unrestricted net position is deeply negative at -$1.36 billion. On a per-capita basis, Buffalo’s liabilities amount to $8,883. In FY23, Buffalo spent $6.9 million more than it took in as revenues. At the close of FY23, Buffalo was relatively liquid, with cash accounting for only 25.4% of its assets. However, Buffalo still held insufficient cash and receivables combined to service its current liabilities of $697 million.

Honolulu, Hawaii, also triggers five red flags. At the close of FY23, Honolulu owed $12.0 billion in total liabilities, 3.12 times its annual revenues of $3.86 billion. At $18.0 billion, Honolulu held more assets than liabilities, but after accounting for restrictions on the use of its assets, its unrestricted net position is deeply negative at -$2.16 billion. On a per-capita basis, Honolulu’s liabilities amount to $11,816. The city ran a surplus of $1.05 billion in FY23, or $1,034 per capita. Honolulu was very illiquid at the close of FY23, with cash accounting for only 2.6% of its assets. Cash and receivables amounted to only 65% of the city’s $1.2 billion in current receivables at the close of FY23.

Baltimore is the third major city to trigger five red flags. At the close of FY23, Baltimore owed $9.70 billion in total liabilities, 2.68 times its total revenues of $3.62 billion. With $13.7 billion in assets, Baltimore was not fundamentally insolvent, but after accounting for restrictions on the use of its assets, its unrestricted net position is deeply negative at -$2.71 billion. On a per-capita basis, Baltimore’s liabilities amount to $16,558. The city spent $179 million more than it took in as revenues in FY23. Baltimore’s quick ratio of 1.76 indicates it could service its debts in the short term, but among the city’s reported assets, $1.17 billion is held as receivables. That equates to 32.3% of its annual revenue and indicates it may be experiencing difficulty collecting these amounts.

Toledo, Ohio, is the last major city to trigger five red flags.

At the close of FY23, Toledo owed $1.91 billion in total liabilities, 2.62 times its total revenues of $728 million. With $3.01 billion in assets, Toledo can theoretically cover its debts, but after accounting for restrictions on the use of its assets, its unrestricted net position is still negative at -$85 million. On a per-capita basis, Toledo’s liabilities amount to $7,033. Toledo was highly illiquid at the close of FY23, with cash accounting for only 1.8% of its assets. This undergirds a deficient quick ratio, with cash and receivables amounting to only 94% of current liabilities. Among the city’s reported assets, $240 million are held as receivables. That equates to 33.0% of its annual revenue.

Milwaukee triggers four red flags. At the close of FY23, Milwaukee owed $4.65 billion in total liabilities but held just $4.28 billion in assets. Its liabilities are 3.15 times greater than its total revenues of $1.47 billion. After accounting for restrictions on the use of its assets, its unrestricted net position is deeply negative, at -$2.88 billion. On a per-capita basis, Milwaukee’s liabilities amount to $8,059. Among Milwaukee’s reported assets, $690 million are held as receivables, which amounts to 46.9% of its annual revenue—indicating the city is having difficulty collecting on its receivables and that these reported assets could be at risk of impairment.

Phoenix also triggers four red flags. At the close of FY23, Phoenix owed $14.13 billion in liabilities, 2.35 times its annual revenues of $6.01 billion. Although total assets of $22.9 billion exceed liabilities, once restrictions on the use of some assets are considered, Phoenix’s unrestricted net position is negative at -$1.02 billion. On a per capita basis, Phoenix’s liabilities amount to $8,787. Phoenix was illiquid at the close of FY23, with cash accounting for only 2.6% of its assets. That lack of cash undergirds a quick ratio of just 0.55.

Houston, Texas, also triggers four red flags. At the close of FY23, Houston owed $21.58 billion in liabilities versus $30.12 billion in assets. Although Houston holds more assets than liabilities, after accounting for restrictions on the use of some assets, its unrestricted net position is negative at -$4.82 billion. Its liabilities were 3.15 times greater than its FY23 revenues of $6.85 billion. Houston was illiquid at the close of FY23, with $1.0 billion in cash accounting for only 3.3% of its assets (although the city held another $3.1 billion in pooled investments). That lack of cash undergirds a quick ratio of just 0.88, indicating imminent difficulty in servicing debts as they fall due.

Several other Texas cities round out this category with four red flags apiece, including Austin, El Paso, Lubbock, Laredo, and San Antonio.

Cincinnati, Louisville (Kentucky), Nashville (Tennessee), Omaha (Nebraska), and St. Louis (Missouri) also trigger four red flags.

In general, these cities exhibit negative unrestricted net positions and short-term liquidity challenges.

Cities with moderate fiscal stress (two and three red flags)

Philadelphia triggers three red flags. At the close of FY23, Philadelphia owed $20.07 billion in total liabilities but held just $17.85 billion in assets. After accounting for restrictions on the use of some assets, its unrestricted net position is deeply negative at -$7.03 billion. On a per-capita basis, Philadelphia’s liabilities amount to $12,517.

San Francisco also triggers three red flags. At the close of FY23, San Francisco owed $37.46 billion, 2.64 times its annual revenues of $14.21 billion. After accounting for restrictions on the use of its assets, its unrestricted net position is negative at -$1.67 billion. On a per-capita basis, San Francisco’s liabilities amount to $42,866—the highest among America’s large cities. On the bright side, San Francisco ran a $778 million surplus in FY23, or $890 per capita, and is relatively liquid in the short term.

An additional 15 cities trigger three red flags and 22 cities trigger two red flags.

The most common trend is a negative unrestricted net position.

Charlotte, North Carolina, triggers one red flag. At the close of FY23, Charlotte owed $7.94 billion in total liabilities. That was a relatively small claim on its $20.81 billion in assets, but liabilities were 2.69 times greater than its annual revenues of $2.95 billion. That was Charlotte’s only red flag. After accounting for restrictions on the use of its assets, its unrestricted net position is positive at $747 million and its per-capita liabilities amount to $9,081. The city ran a surplus of $576 million in FY23, or $659 per capita, and held strong liquidity at year-end.

San Diego also triggers one red flag. At the close of FY23, San Diego owed $8.06 billion in total liabilities, which were easily outweighed by its $18.24 billion in assets. Its revenues of $4.27 billion were strong, creating a solvency ratio of 1.89. On a per-capita basis, San Diego’s liabilities amount to $5,810. The city ran a surplus of $633 million in FY23, or $457 per capita. San Diego’s only red flag results from a negative unrestricted net position of
-$1.71 billion.

An additional 22 cities merit one red flag while 18 cities merit zero red flags.

These cities demonstrate that it’s possible to manage the finances of a large municipality without incurring unsustainable debt loads or major liquidity challenges.

Conclusions for city performance

Fiscal stress is not inevitable even among America’s largest cities. While Chicago and New York face extreme pressure on nearly every metric, 42 of the 100 most populous cities trigger one or fewer red flags.

Cities such as Charlotte, San Diego, Fort Worth, Columbus, and San Jose demonstrate that large-scale municipal operations can be managed with prudence and long-term solvency. These divergent outcomes reflect differing approaches to pension funding, debt issuance, spending restraint, and reserve accumulation. The 100 most populous cities offer clear models of both fiscal recklessness and fiscal responsibility that can inform policy decisions nationwide.

State and local government finances in America: A comprehensive analysis of debt and liquidity

New Jersey and Connecticut are the most financially distressed states

Chicago and New York City are most fiscally stressed cities in the nation

Nassau County and Miami-Dade are nation’s most fiscally stressed counties

Fort Bend (TX) and Gwinnett County (GA) are the most fiscally stressed school districts in the nation

Full policy study: State and local government finances in America: A comprehensive analysis of debt and liquidity