Here is a link to an in depth analysis of the finances of the fifty states. It looks at potential short term and long term problems. The usual suspects appear on the "troubled" lists; California, New Jersey, Alaska and Kentucky while the other usual suspects appear on the "better off" lists; Tennessee, Virginia, Florida and Texas.
The report does conclude that corporate and personal income taxes are not an effective means of maintaining tax receipt levels in an economic downturn. My preferred method of taxation (consumption taxes) came out as a big winner. Long and short of it all; states need to control their spending during flush times and make early and regular contributions to rainy day funds to make up the difference during hard times. States should also contribute more to their employees pension and retiree health care plans and not count on outlandish expected rates of return (8%? Are you kidding me?) to make up the difference.
I would say that a better long term solution is to turn away from "defined benefit" pension plans for newly hired state workers and instead move them into "defined contribution" 401K style plans. Also, states pension plans should base retiree benefits not upon the last few years of income but rather on an average of career earnings. Finally, state retirees should not be able to begin receiving PENSION benefits until they reach a set retirement age instead of the current policy of receiving benefits at retirement after a certain number of years service. Newer employees who would be hired under 401K style plans could retire... well... whenever they want. It's their money.
http://www.td.com/economics/special/cs1010_fiscal_crisis.pdf
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Fortunately my state institution allows some of it's employees to opt out of the state pension and invest in their own portfolio. Of course I was planning on better returns than what we might get in a post financial reform environment. We'll see.
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