Next year could be challenging for some state legislatures as they grapple with federal funding changes and tax revenue declines, the head of a national organization said Tuesday.
After several years of strong revenue growth, some states are showing “wobbly” projections for next year, said Tim Storey. He’s CEO of the National Conference of State Legislatures.
One factor is declining oil prices which is cheered by consumers at the pump but produces less revenue particularly for oil producing states, Storey said.
The potential revenue slowdown follows several years of healthy growth for many states, with some budgets still flush with federal COVID-19 relief funds, the CEO added.
“We have been through what I believe to be perhaps an unprecedented era of tax cuts,” he told reporters. “Essentially, every state has cut taxes over the last three years in some form or fashion. Now we are starting to see some wobble in the revenue estimates for next year.”
Storey predicted a slowdown if not a complete halt to state tax cuts.
Many states have accumulated large “rainy day” emergency funds that they can tap instead of raising taxes.
But at the same time, federal funding for some state programs was reduced under budget legislation known as the One Big Beautiful Bill Act signed by second-term Republican President Donald Trump on July 4.
Also, states with income taxes that track federal income tax regulations will also likely see changes in revenue
“For example, if you are a conforming state with the federal table income determination – adjusted gross income, because of changes in the One Big Beautiful Bill Act, you’ve got some almost immediate issues around having your state income tax conform to the federal income tax,” said Storey.
Medicaid and food stamp programs may also be affected by federal legislation.
“Most of those don’t take effect until 2027, 2028, 2029,” Storey said. “But there is a whole lot of policy work that needs to be done around the work requirements for Medicaid, around SNAP eligibility issues.”
SNAP is the federal food stamp program; the acronym is the Supplemental Nutrition Assistance Program.
There is a “big storm coming,” for state budgets as the new federal changes take effect, he added.
It will likely cost states tens of billions of dollars, with those that expanded Medicaid likely to get hit harder than those that did not, Storey said.
States are also dealing with legislation on regulating artificial intelligence, while waiting for possible federal action. Trump this week said he plans to issue an executive order preempting states from enacting AI regulations.
Next year is also a midterms election year, with races that will determine control of Congress as well as many state offices.
“That’s going to influence everything,” Storey said. “It’s an eternity between now and next November. Who can say with any certainty which way the wind will blow?”
