The Investigative Journal’s monthly survey of state-level accountability findings — audit reports, pension disclosures, credit rating actions, and corruption cases — surfaced through public records and official filings.
State and municipal balance sheets continue to absorb the shocks of post-pandemic spending, rising fixed costs, and weakening federal support. The past month produced a striking cluster of accountability events: a North Carolina state auditor referred a $5 million financial-aid scandal for criminal investigation, Chicago’s general obligation debt was downgraded by two rating agencies, California’s high-risk audit program flagged more than $4.6 million in waste at a single agency, and Maryland confronted a $1.4 billion budget gap less than a year after losing its half-century-old AAA rating. Across these jurisdictions a recurring theme emerges — structural cost growth is outrunning the political will to restrain it, and the gap is increasingly being closed with non-recurring revenues, reserves, and deferred liabilities.
North Carolina: A&T Aid Scandal Heads to Prosecutors
On April 23, North Carolina State Auditor Dave Boliek released an investigative special report concluding that North Carolina Agricultural and Technical State University improperly directed $5 million in Administrative Recovery Funds to students “without evidence of merit or need-based criteria.” The Office of the State Auditor (OSA) determined that more than $780,000 went to students who were university employees, family members of employees, or had personal or professional connections to former senior officials. Of the $5 million reviewed, the audit found that $3.2 million flowed to out-of-state students and $1.8 million to in-state students.
Records indicate the funds in question are fees charged to students in connection with housing, dining, and parking services — money intended to offset administrative overhead, not to function as discretionary scholarship aid. The OSA confirmed that NC A&T self-reported irregularities, prompting the review. A criminal referral was made to the State Bureau of Investigation, and the Guilford County District Attorney was notified. No charges have been filed, and pending cases must be treated as allegations rather than findings of criminal liability. The auditor’s report is posted in full on the OSA website.
California: $4.6 Million in Cellphones, $5 Million in Documented Waste
The California State Auditor’s most recent Investigations of Improper Activities by State Agencies and Employees identified more than $5 million in waste, misuse, or unreported activity across multiple departments. The single largest line item: the Employment Development Department (EDD) spent at least $4.6 million on service fees for more than 6,200 cellphones acquired during the COVID-19 pandemic. According to the audit, more than half of the devices went unused for at least two years and 99 were never used at all.
Filings also document vehicle misuse totalling roughly $16,000, including one manager who drove a state vehicle between an office and home on at least 43 occasions between September 2024 and February 2025, logging 2,618 miles. Separately, the Yountville Veterans Home failed to report more than $400,000 in taxable housing benefits provided to employee-tenants from 2023 through 2025.
The State High-Risk Audit Program report (2025-601) keeps the Finance Department’s management of federal COVID-19 funds on the high-risk statewide list — a recurring designation that signals unresolved structural weaknesses rather than isolated lapses. California’s general fund remains the largest in the country, which amplifies the absolute dollar value of even modest control failures.
Illinois and Chicago: Two Downgrades, One Pension Cliff
In February, Fitch Ratings and Kroll Bond Rating Agency each downgraded the City of Chicago’s general obligation debt to BBB+ from A-, both maintaining negative outlooks. S&P Global Ratings had already revised the city’s outlook to negative the prior November. The downgrades reflect what Fitch described as consecutive operating deficits since 2023, continued dependence on non-structural budget solutions, and ongoing disagreements between the mayor’s administration and the city council.
The City of Chicago entered fiscal 2026 with a $1.15 billion budget gap. Filings indicate the city has shifted debt from property-tax-backed general obligation bonds to sales-tax securitization bonds, capturing up-front interest savings — a maneuver rating analysts have flagged as a short-term fix that does not address structural imbalance. Municipal Market Analytics has cautioned investors to assume further downgrades.
The fiscal pressure on Chicago cannot be separated from the state pension picture. The Commission on Government Forecasting and Accountability reports Illinois’ five state-administered pension systems carried $144.3 billion in unfunded liabilities as of June 30, 2024, led by the Teachers’ Retirement System at $83.6 billion. The state’s preliminarily certified FY 2026 contribution to the systems is $11.7 billion. According to plan actuaries, the systems actually require more than $16.8 billion annually for the next two decades to begin paying down the debt — a gap of roughly $5 billion each year between statutory practice and actuarial need. Illinois’ aggregate funded ratio sits near 45 percent, well below the GAO’s 80 percent benchmark for a healthy system.
Maryland: A Year After the Downgrade, the Hole Gets Deeper
Maryland lost its AAA rating from Moody’s in May 2025 — the end of a streak that had stood for more than 50 years — when the agency cited “economic underperformance, high fixed costs, and exposure to federal employment and policy shifts.” Twelve months later, the structural pressure that prompted the downgrade has not abated. Records from the Maryland Department of Legislative Services indicate the state confronts a projected $1.4 billion budget shortfall for the upcoming fiscal year, even after Governor Wes Moore signed a $67 billion FY 2026 budget that included more than $1.6 billion in tax and fee increases to close a $3.3 billion structural deficit.
Legislative analysts project the structural gap will more than double to $3.2 billion in fiscal 2028, then climb toward roughly $4 billion in fiscal 2030 and 2031. Education spending under the Blueprint for Maryland’s Future is the largest single driver, but filings also point to slower-than-expected revenue growth, high fixed Medicaid costs, and the state’s outsized exposure to federal employment. Lawmakers have been cautioned against using reserves to plug recurring expenditures — the same pattern rating agencies cited in downgrading both Maryland and, separately, New York City.
New York City: Moody’s Moves the Outlook to Negative
In late March, Moody’s Ratings revised New York City’s Aa2 issuer rating outlook to negative from stable — the first negative rating action against the city since the COVID-19 pandemic. Moody’s cited reliance on nonrecurring budget solutions, eroding reserves, and exposure to federal funding uncertainty. All four major rating agencies have placed the city on watch in connection with the FY 2027 budget proposal. The New York City Comptroller’s office has published its own analysis of credit risk drivers — fixed cost growth, federal aid exposure, and reserves — that broadly tracks the rating agencies’ concerns.
The city’s budget is the largest of any U.S. municipality, so even modest deterioration carries national implications for the municipal bond market. Analysts at Charles Schwab have flagged federal funding stress as the principal 2026 risk to the muni sector, with smaller and weaker issuers most exposed.
Ohio: A $443,568 Treasurer Bill and a Fiscal Emergency
Ohio Auditor of State Keith Faber’s office has been working through a series of school district audits that illustrate how localized fiscal failure can become. In one district, auditors found that a former treasurer had been paid $443,568 in fiscal year 2024 — his contracted base pay plus a $312,165 stipend, a $5,750 car allowance, and an $11,146 leave balance payout — under an arrangement approved by the board of education. The auditor identified no findings for recovery but flagged the contract structure as creating excessive risk and recommended additional policy controls.
Separately, the auditor’s office placed Trimble Local School District in a state of fiscal emergency after the district accumulated a nearly $3 million operating fund deficit. Statewide, Ohio’s accountability picture has been complicated by recurring Medicaid fraud findings; the auditor reports that since 2019, 161 individuals have been convicted in cases involving billions in Medicaid waste, fraud, and abuse. A December 2025 audit also found that 39 of 55 companies that received Job Creation Tax Credits through the Ohio Department of Development failed to meet the minimum job creation thresholds required by the program.
Texas: Statewide Single Audit Goes Out Clean — With Footnotes
The Texas State Auditor’s Office released Report No. 26-318 in February — the State of Texas Federal Portion of the Statewide Single Audit Report for the year ended August 31, 2025 — under State Auditor Lisa R. Collier. The audit returned an unmodified (“clean”) opinion on the consolidated financial statements but, as is typical for a $300-billion-plus state budget, contains a schedule of financial statement findings and federal award findings and questioned costs that warrant agency-by-agency review by the legislature. Texas remains one of the better-positioned large states on aggregate fiscal metrics, but the federal-funds-heavy footprint of the state’s social services and emergency-management agencies means single-audit findings disproportionately drive its compliance exposure.
Kentucky: $23.3 Billion Pension Hole, Slowly Improving
According to actuarial valuation materials presented to Kentucky’s Public Pension Oversight Board, the unfunded actuarial accrued liability of the state’s pension plans stood at roughly $23.28 billion as of the June 30, 2023 valuation — down approximately $1.82 billion from the prior year. The liability is being amortized over a closed 30-year period running from 2019 to 2049, leaving 24 years on the schedule. The June 30, 2025 actuarial valuation set the framework for FY 2027 and FY 2028 contribution rates, which the KRS Board of Trustees approved in December 2025. Kentucky’s pension funding posture remains among the weakest in the country alongside Illinois, New Jersey, and Connecticut — though directional improvement, modest as it is, distinguishes Kentucky from peers whose ratios have continued to deteriorate.
Recurring Themes
Several patterns recur across this month’s findings. First, non-recurring revenue dependence — federal pandemic dollars, one-time settlements, reserves — continues to feature in budget balancing, and rating agencies are now explicitly citing the practice as a downgrade trigger (see Chicago, New York City, Maryland). Second, fixed costs — pensions, retiree health, debt service, Medicaid match — are absorbing an ever-larger share of operating budgets, leaving less room for discretionary services. Third, controls over federal program spending remain a high-risk area, with COVID-era flexibilities continuing to surface as audit findings years after the emergency ended.
Fourth, the accountability chain still works when local institutions self-report and state auditors follow through, as illustrated by the NC A&T referral. Fifth, the gap between actuarially required pension contributions and statutorily certified contributions — clearest in Illinois at roughly $5 billion a year — represents a quiet, compounding liability that does not show up in current-year operating reports but will eventually surface as either tax increases, benefit reductions, or service cuts.
Watchlist for TIJ Investigation
Records suggest three threads warrant deeper reporting in the coming months. The Administrative Recovery Funds mechanism at the heart of the NC A&T case is a category of revenue used across many public university systems; the investigative question is whether comparable controls — or comparable lapses — exist elsewhere. Chicago’s sales-tax securitization structure, which has allowed the city to capture up-front savings while reshuffling its debt profile, deserves a closer look at the long-term cost. And the persistent failure of Ohio’s Job Creation Tax Credit program to deliver the jobs it pays for raises a broader accountability question about state economic-development incentives — a category that, across all 50 states, costs taxpayers tens of billions of dollars annually with limited public reporting on outcomes.
The Investigative Journal will return to State Watch on the 7th of next month. Tips on state and local government accountability findings can be sent to the editor.
Sources
- NC Office of the State Auditor — NC A&T Investigative Special Report (April 23, 2026)
- California State Auditor — 2025-601 State High-Risk Audit Program
- California State Auditor — I2025-1 Investigations of Improper Activities
- KBRA — Chicago GO Downgrade to BBB+
- City of Chicago COFA — Fitch/KBRA Downgrade Analysis
- Illinois CGFA — Special Pension Briefing
- Moody’s — Maryland Downgrade to Aa1
- Maryland Department of Legislative Services — FY 2027 Gap Projection
- Moody’s — NYC Outlook Revision to Negative
- NYC Comptroller — Risks to the City’s Credit Ratings
- Ohio Auditor of State — Press Releases
- Texas State Auditor — Report No. 26-318 (Statewide Single Audit, FY 2025)
- Kentucky Public Pension Oversight Board — December 2025 Actuarial Update