The disturbingly large present and prospective fiscal deficits of the federal government receive much attention, and deservedly so. Yet the financial situations of many state and local government finances are also in bad shape, and in many respects they are far more difficult to solve than are the federal fiscal problems. As bad as their present fiscal situation is, the long-term picture for state and local government finance is even more dismal. The vast looming problem is the huge level of unfunded liabilities for pensions and health care to retired government employees. Recent estimates place state and local government unfunded liabilities at over $3 trillion.