Numerous major American cities are facing severe financial difficulties. The reasons behind this are explained.

Municipal governments across the United States are facing financial challenges as pandemic-era stimulus dries up and inflation lingers for longer than expected. Despite high municipal credit ratings and robust demand for urban commodities like housing, cities are struggling to manage their capital needs. For example, New York City had a total public debt of $177.6 billion at the end of fiscal year 2022, according to researchers at Truth in Accounting, which translates into a per capita taxpayer burden of $61,200. This estimate comes in higher than the one quoted by New York City Comptroller Brad Lander, who says the Big Apple has a public debt burden of roughly $96 billion in 2024.

"If I don't pay that invoice, I won't have to include it in my balanced budget," said Sheila Weinberg, the group's founder and CEO.

According to Truth in Accounting, 53 of the largest cities in the U.S. faced a revenue shortfall at the end of fiscal year 2022. The report also highlights the financial challenges faced by cities such as Chicago, Houston, and Portland, Oregon. During a March 2024 City Council budget hearing, Houston Mayor John Whitmire stated, "I think we can all agree that we're broke."

The underfunded pension obligations and retiree health benefits are putting a strain on municipal governments across the country, as seen in Detroit's 2013 bankruptcy when the city temporarily halted pension payments to boost reserves. According to Weinberg, this issue is a significant problem nationwide, and voters often believe that they are living within their means when in reality, they are not.

Cities and state governments are spending money today unsustainably, according to Weinberg's statement to CNBC.

In New York City, leaders maintain hope for future gains.

Lander, the city comptroller, emphasized the importance of careful spending and avoiding excessive debt in a CNBC interview. He also discussed the trade-offs between bond/debt-powered spending and other revenue raising measures like tax increases. In 2024, Lander voiced support for a $12 billion expansion of New York City's debt limit to fund existing city services like community colleges and the police department, alongside an expansionary capital program in the face of issues such as the climate crisis.

As debts rise, New York City Mayor Eric Adams has proposed a "Program to Eliminate the Gap" that involves cutting city program spending by 5% in three separate areas, including sanitation, library access, public education, and jail stewardships.

If New York City is unable to issue debt to fund a portion of their capital plan, it could result in unsafe school conditions, overcrowding, and other issues, according to Rinaldi at Fitch Ratings. In the spring of 2024, Adams withdrew portions of his spending cuts proposal due to unexpectedly strong economic performance within the city. However, he cautioned in a January 2024 press conference that further actions are necessary to maintain the city's financial stability. Watch the video above to learn more about the financial challenges faced by local governments in the U.S.