Bad news on the state of muni finances.

The Texas budget is expected to run a $27 billion two-year budget shortfall according to just-released state estimates.

That's worse than the $25 billion that Paul Krugman cited last week when he gleefully noted that a GOP bastion was facing deficit problems.

(Conservative pundit Kevin Williamson responded by saying that "insiders" were estimating a mere $11-$15 billion shortfall. Obviously those insiders were optimistic.)

In the first year, the state is expected to collect $72.2 billion versus expenditures of $87 billion.

Texas may still be in a better shape than states like Illinois, but this is a severe gap, and cuts to healthcare or education or higher taxes are coming.

Here's more background on the Texas situation here >

Click here to see the 15 states with the biggest fiscal deficits >