Homeland Security Secretary Janet Napolitano denied Thursday that the latest drug-fueled violence in Mexico has spilled across the border, even as local officials throughout the country see troubling signs of Mexican gang activity. 

The Department of Justice reports that 230 U.S. cities, from Anchorage to Atlanta have a cartel or Mexican gang presence. A February report from the Cato Institute found a "troubling number of incidents" in which Mexico violence was spilling across the border. It also noted increasing violence against U.S. citizens traveling in the southern neighbor.

Federal authorities say more that $14 billion in illegal drugs are smuggled into the U.S. every year through Mexico. And Phoenix, the capital city of Napolitano's home state of Arizona, recorded 370 kidnappings last year, placing it only second to Mexico City worldwide, though it wasn't immediately clear how many of the kidnappings can be traced to Mexican drug activity.

Napolitano acknowledged Thursday that violence in Mexico "has risen to very high levels." But she said that although the U.S. is planning for the potential for violence to move north across the border, it hasn't happened yet.

"Right now it has not (crossed the border). But it is a contingency we have in mind because it could," the former Arizona governor told reporters. "We have contingency plans should violence spread into the United States." 

The situation in Mexico is dire. 

The country sees almost daily assassinations and kidnappings of government and police officials, battles frequently break out between soldiers and drug gangs involving small-arms fire and rocket-propelled grenades. 

Experts warn that the violence already is on a pace to break last year's record of nearly 6,000 people killed by narco-terrorists in Mexico. 

"What we have seen in Mexico is a very sobering trend. ... At the current pace, for 2009 we are looking at something in the area of 8,000 dead. It is a carnage that is alarming already," Ted Carpenter, a Cato Institute foreign policy expert, said at a forum Thursday. "Mexico has already displaced Colombia as the kidnapping capital of the world ... and the violence is spilling across the border into the United States. American citizens, including law enforcement personnel, have been targeted by the drug cartels for assassination." 

President Obama discussed the latest drug violence during a meeting last month with Mexican President Felipe Calderon, whose country already has deployed 45,000 troops to fight the cartels. 

The final stimulus plan Obama signed into law this week contained about $600 million to help bolster border security and curb gun flow to Mexico -- 95 percent of which come from the U.S. 

The situation is so unstable the Obama administration's new director of national intelligence warned Congress last week that the Mexican government is losing control. 

"The corruptive influence and increasing violence of Mexican drug cartels impedes Mexico City's ability to govern parts of its country," Dennis Bair told the Senate Intelligence Committee. 

Even more alarming, the U.S. Joint Forces Command said in recent report that Mexico rivals Pakistan as the country most at risk of collapse. The report said Mexico's "politicians, police and judicial infrastructure are all under sustained assault and pressure by criminal gangs and drug cartels. ... Any descent by Mexico into chaos would demand an American response based on the serious implications for homeland security alone." 

For their part, Texas authorities are preparing contingency plans for the worst-case scenario -- hundreds of thousands of Mexican refugees attempting to head north to escape the violence. The economic consequences of collapse are immense with trade between the two countries totaling $368 billion last year. Mexico also is the top supplier to the U.S. of crude oil. 

But Carpenter, a longtime observer of the region, said it is unlikely that the Mexican government will fall completely. 

"The fear of Mexico becoming a full-fledged failed state is somewhat exaggerated. It's unlikely the violence, as bad as it is, is going to reach that level," he said, arguing instead that the more likely scenario is Mexico will become "an informal narco-state model in which cartels become the power behind the throne." 

FOX News' Mike Levine and Carl Cameron contributed to this report.