States face hard choices as budgets expected to tighten

by Kevin Hardy, Louisiana Illuminator
June 30, 2025

Slow revenue growth continues to pinch state budgets across the country, leading governors to propose spending cuts, hiring freezes and some tax increases.

In its spring survey of states, the National Association of State Budget Officers found that general fund spending will hold steady in fiscal 2026 as states expect limited revenue growth but increased costs.

Though most states are meeting or exceeding 2025 revenue projections, a growing number are downgrading their revenue expectations for the next fiscal year, Shelby Kerns, executive director of the national association, said in a news release.

“In a number of states, we’re seeing expenditure projections outpacing revenue growth, forcing policymakers to make hard choices in order to balance their budgets,” Kerns said.

States typically wrap up budget work by the end of June, with the next fiscal year beginning July 1. Kerns said the organization anticipates states may need to make mid-year budget adjustments depending on upcoming federal changes in tax policy and spending.

In recent years, many states have been flush with an influx of federal pandemic aid and strong tax revenues from a booming national economy. But with the end of pandemic aid, an uncertain economic future and deep cuts to state taxes, many lawmakers this year confronted major budget challenges in statehouses.

Just weeks after signing a budget that required deep spending cuts and increased taxes, Washington Democratic state Gov. Bob Ferguson told state agencies to prepare for even more belt tightening.

“We will very likely continue to face a challenging state budget environment in the coming year and anticipate increasing caseloads and ongoing uncertainty in the economy and federal funding,” said a June 4 memo from the governor’s budget director to agency leaders, according to the Washington State Standard.

Still, many states continue to tout major levels of reserve funds.

The National Association of State Budget Officers found at least 30 states expect to maintain a rainy-day fund balance exceeding 10% of their general fund expenditures. This year, 29 states grew their reserve funds, with the majority of states expected to continue to grow their savings next fiscal year.

In Tennessee, general fund revenue growth is slowing, but state leaders were able to rely on $1.5 billion in unspent state funds and $700 million in interest earnings from federal pandemic funds, the Tennessee Lookout reported.

“Despite tighter fiscal conditions, states overall remain in a solid fiscal position with rainy day funds at near all-time highs, low debt levels, and strong credit ratings,” David Thurman, Tennessee’s budget director and current association president, said in the group’s news release.

Louisiana Illuminator is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Louisiana Illuminator maintains editorial independence. Contact Editor Greg LaRose for questions: info@lailluminator.com.

The post States face hard choices as budgets expected to tighten appeared first on lailluminator.com

Note: The following A.I. based commentary is not part of the original article, reproduced above, but is offered in the hopes that it will promote greater media literacy and critical thinking, by making any potential bias more visible to the reader –Staff Editor.

Political Bias Rating: Centrist

This article presents a neutral, factual overview of state budget challenges and fiscal conditions across the U.S., relying on data and statements from nonpartisan organizations and government officials. It covers both spending cuts and tax increases without endorsing a particular political ideology. The inclusion of examples from states led by different parties and the balanced tone focused on economic realities rather than partisan framing indicate a centrist, objective reporting style.