Ellen Jaskol/(Photo by Ellen Jaskol)
As the incoming Trump administration and Congress gear up for a major battle over the budget, state legislatures are already feeling their own pressure.
“What we’re looking at for 2025 is a few warning lights on the dashboard that there could be some stress on state budgets in the next year,” said Tim Storey, CEO at the National Council of State Legislatures.
“I’ve seen five to seven states that are saying, ‘we’re starting to project slower revenue growth, perhaps even some shortfalls.'”
The comments came during a webinar produced by NCSL on Monday in conjunction with a
The key issues explored include ongoing infrastructure spending as related to the effects of electric vehicles on highway funding, efforts to expand broadband, cyber security and housing affordability.
Budgets and possible shortfalls resulting from a slowdown in federal funds rise to the top of the worries. Credit rating agencies keep a close eye on shaky state finances that could lead to downgrades that impacts their cost of financing.
Every state but Vermont requires by law that budgets remain in balance, a task made easier during the pandemic when federal relief funds and higher tax revenues filled state coffers.
Some states kicked back budget surpluses to taxpayers while others embarked on a more perilous course.
“Nearly every state enacted some kind of tax cuts in the last couple of years,” said Storey. “They did reduce revenue and then you’ve got spending pressure in a number of areas, not the least of which is Medicaid.”
Medicaid is emerging as fat target in Washington as federal cost-cutting becomes a major issue on Capitol Hill.
According to the
Medicaid is most states’ biggest expense after K-12 education. State Medicaid funding is matched by the federal contributions using formulas that factor in population.
According to the Peter G. Peterson Foundation, 67% of Medicaid funding comes from the federal government.
States are also continuing to wrestle with the workforce development challenges of attracting talent.
“It cuts across every field, education, childcare, senior care, law enforcement, criminal justice, and prisons,” said Storey.
“You still have well over 1.7 job openings for every one person that’s seeking a job. There continues to be a very tight labor market, which affects not just the private sector, but also the state governments.”
Although the White House and the Senate are changing parties, politics at the state level are mostly maintaining the status quo.
“At one point, there was 24 chamber switches in an election cycle,” said Storey. ”That didn’t happen. It’s not like there’s a mandate for do this, do that, from a partisan perspective that played itself out in state legislatures.”