The Investigative Journal’s monthly review of state government accountability. This edition covers developments recorded across roughly ten states through early July 2026, drawn from state auditor reports, public pension disclosures and municipal credit filings. Every figure is linked to a public record.
Public documents reviewed over the past several months point to a recurring set of pressures on state and local governments: thinly staffed oversight functions struggling to keep pace with fast-growing spending programs, public pension systems still carrying more than a trillion dollars in combined debt, and a widening group of large cities drawing warnings from credit-rating agencies. What follows is a state-by-state summary, with links to the underlying reports.
Arizona: auditors call voucher oversight ‘haphazard’
The sharpest audit finding of the period came from the Arizona Auditor General, whose office reported that the Department of Education’s oversight of the state’s Empowerment Scholarship Accounts (ESA) program — now used by more than 100,000 students — was “haphazard” and riddled with gaps. According to the report, summarized by the Arizona Mirror, the department automatically approved every purchase under $2,000 to clear a backlog of frustrated parents, processing almost 2.3 million such transactions worth more than $654 million between December 2024 and January 2026.
Auditors reviewed a sample of 63 transactions totaling $251,446 and found that 25 of them — worth a combined $86,599, or 34 percent of the dollars examined — had problems. The report also identified more than 581,000 “high-risk” transactions worth nearly $100 million that the program could not show it had reviewed. In 14 of 15 flagged cases examined, records indicate managers had not acted, including on a $1,099 generator purchased through the program. Superintendent of Public Instruction Tom Horne disputed the findings, saying the program “is being operated appropriately” and noting that the confirmed problem transactions represent a small fraction of the program’s roughly $1 billion budget. The dispute over how to weigh a small verified-error sample against a large unreviewed population is itself worth watching.
California: a clean-energy bet and $5 million in flagged waste
In California, members of Congress opened an inquiry in February into the California Public Employees’ Retirement System (CalPERS) over a clean-energy investment. According to PLANSPONSOR and Chief Investment Officer, the lawmakers requested records showing that CalPERS had invested more than $468 million in a clean-energy and technology fund since 2007; filings indicate the position had fallen to less than $138.1 million by March 31, 2025 — a decline of roughly $330 million, or about 71 percent. The inquiry is a request for records, not a finding: it asks whether the fund’s environmental, social and governance strategy is consistent with trustees’ fiduciary duty to act for the exclusive benefit of members. CalPERS has defended its long-term investment approach.
Separately, the California State Auditor’s most recent investigative report, released in December 2025, substantiated more than $5.1 million in waste, improper payments and unreported benefits across several agencies. The largest item: the Employment Development Department paid monthly service fees on more than 6,200 mobile devices that sat unused — many for two years or more — at a cost of over $4.6 million. The Air Resources Board overpaid an employee $171,446 across 15 months of extended leave, and the Yountville Veterans Home did not report roughly $400,000 in taxable housing benefits to the State Controller. The agencies have said they are adopting the auditor’s recommendations.
Oklahoma: an audit that cleared an agency but flagged an ‘honor system’
Not every audit produced a scandal. An investigative audit of the Oklahoma State Department of Education, released in February and covering the 2020–21 fiscal year, found no evidence of financial misconduct. But it identified systemic weaknesses that limit the state’s ability to catch wrongdoing. As NonDoc reported, the Oklahoma Cost Accounting System relies on expenditure data uploaded by school districts themselves — which auditors described as effectively an “honor system” — and a state accountability office had failed to review 23 districts that exceeded cost limits. The finding is a useful reminder that a clean audit and a robust control environment are not the same thing.
New York City: three of four agencies shift to a negative outlook
On the municipal-credit front, Moody’s Ratings revised New York City’s outlook to negative from stable on March 11, 2026, while affirming its Aa2 issuer rating. According to the Office of the New York City Comptroller, three of the four agencies that rate the city’s general-obligation debt moved to a negative outlook following release of the city’s fiscal 2027 budget. The agencies pointed to sizable, persistent projected budget gaps that signal structural imbalance, even as the city’s underlying economy remains comparatively strong. A negative outlook is a warning rather than a downgrade — but it signals that the next rating move, absent improvement, is more likely to be down than up.
Illinois and Chicago: a downgrade and the nation’s deepest pension hole
Chicago drew a more concrete penalty. City financial-analysis records show that Kroll Bond Rating Agency downgraded the city’s general-obligation bonds in late February 2026, as Chicago confronted a budget gap of roughly $1.15 billion entering fiscal 2026. That pressure is inseparable from the state’s pension picture: Illinois’ state systems remain among the worst-funded in the country, with a funded ratio near 50 percent, and state contributions have grown from about $614 million in fiscal 1996 to roughly $11.2 billion in fiscal 2025 — a nearly twenty-fold increase that crowds out other spending each year.
New Jersey: full payments, still barely half funded
New Jersey offers a contrasting case of discipline meeting a deep hole. State Treasury figures put the combined state-administered funded ratio at 54.0 percent for fiscal 2026. The governor’s budget calls for a total pension contribution of about $7.24 billion — including a projected $1.14 billion lottery contribution — which would mark the fifth consecutive year of paying 100 percent of the actuarially determined amount. Records suggest the state’s challenge is now less about willingness to pay than about the size of the liability already accumulated.
North Carolina: auditor ties vacancies to pay
In North Carolina, State Auditor Dave Boliek’s office reported that 8,845 government positions had been vacant for more than six months — about 11 percent of the state workforce — with more than a third of those long-term vacancies attributed to low compensation, according to NC Newsline. The report, produced under the state’s new government-efficiency law, arrived as legislators advanced a budget framework that includes an average 3 percent raise. It is a comparatively rare accountability finding that points toward higher spending rather than cuts.
In the courts
At least one state-level criminal case advanced during the period. In South Dakota, a Republican state senator was charged with two felonies over allegations that he submitted candidate nominating paperwork without the candidates’ knowledge, South Dakota Searchlight reported in late June. The charges are allegations; the case is pending, and the senator is presumed innocent unless and until proven otherwise in court. TIJ will track the docket rather than the headline.
The number behind the numbers: $1.48 trillion
Underlying many of these state stories is a single figure. The Reason Foundation’s most recent Annual Pension Solvency and Performance Report, drawing on fiscal 2024 data, estimates that state and local pension systems carry about $1.48 trillion in unfunded liabilities — down from $1.62 trillion a year earlier, largely on stronger-than-expected 2024 investment returns. State plans hold roughly $1.29 trillion of that total; local governments about $187 billion. The median plan is roughly 78 to 79 percent funded. California (about $265 billion) and Illinois (about $201 billion) carry the largest raw pension debts, followed by Texas ($92.2 billion) and New Jersey ($92 billion); only Tennessee, Washington and South Dakota were reported as fully funded. The same analysis cautions, in its stress testing, that a 20 percent market downturn could push average funding down toward 63 percent — a reminder that this year’s improvement rests on markets that can reverse.
Recurring themes — and where TIJ is looking next
Three patterns recur across this month’s records. First, oversight capacity is lagging spending growth: Arizona’s voucher program and Oklahoma’s district-reporting system both rely on self-reported data or after-the-fact review rather than front-end controls. Second, pension debt continues to shape municipal credit, most visibly in Illinois and Chicago, where legacy liabilities sit directly behind budget gaps and downgrades. Third, rating agencies are increasingly signaling that structural budget gaps — not one-time shocks — are the core risk, as in New York City’s shift to a negative outlook.
Several threads warrant deeper investigation. The Investigative Journal intends to examine how states are reconciling risk-based audit mandates with political pressure to speed payments, using Arizona’s ESA program as a test case; whether public pension boards’ investment governance can withstand scrutiny of their fiduciary duty, following the CalPERS records request; and how cities such as Chicago and New York plan to close structural gaps without triggering further downgrades. Readers holding relevant documents — audit workpapers, pension board minutes, or contract records — are invited to contact our newsroom.
Every figure in this report is drawn from a public record linked above. Where a matter is an allegation or an open inquiry rather than a formal finding, we have said so. Agencies named here were, in each cited report, given an opportunity to respond, and their responses are noted where available.