In Jefferson City, Missouri, policymakers face uncertainty due to President Donald Trump’s proposed sweeping tax cuts and reductions in federal spending on social safety net programs. The implications for states are significant, although options to address them this year are limited.
Most states are already locked into their budgets for the new fiscal year, which begins Tuesday in 46 states, without a clear picture of potential federal funding cuts. While some state legislatures are still active, the majority have concluded their sessions, concluding their budget plans without definitive information on federal financial changes.
David Adkins, executive director of The Council of State Governments, emphasized the unpredictability states are experiencing, expressing both uncertainty and anxiety over federal funding prospects. Some states are taking precautions by creating reserve funds or establishing committees to monitor potential federal cuts. Others consider holding special sessions this year to address potential cuts to programs such as Medicaid and SNAP, which are funded jointly by federal and state governments.
The importance of federal support is evident with Medicaid, which represents 30% of state expenditures nationally, according to KFF. Medicaid surpasses even K-12 education in terms of cost in many states. With legislative changes on the horizon in Congress—such as work requirements and other alterations—the potential reduction of federal Medicaid payments looms large.
Currently, SNAP’s full benefit costs are federally funded; however, Trump’s bill proposes shifting more financial responsibility to states, prompting potential program cutbacks or financial diversion from other areas. Additionally, the administration’s approach includes minimizing grants for key initiatives like transportation, broadband development, and deterring funds from sanctuary jurisdictions.
States are shoring up their finances in response. Thanks to pandemic-driven federal aid and tax revenue spikes, many states enjoyed cash surpluses. As revenues temper and surplus funds dwindle, some states preemptively safeguard against federal reductions.
For instance, New Mexico has initiated a purse for Medicaid, aiming at a $2 billion reserve to offset any loss in federal funding. Hawaii reserved $200 million and plans to revisit its budget if necessary. Meanwhile, Vermont has set aside $110 million to address future federal funding dips, including discretionary use of $50 million during legislative recesses.
Florida’s lawmakers are considering a constitutional amendment to allocate up to $750 million annually—or a quarter of general revenue, whichever lesser—to a contingency fund for emergencies. This proposal awaits voter approval.
Some governors prefer fiscal caution. Virginia’s budget, crafted prior to Trump’s fiscal policies clarification, was amended by Governor Glenn Youngkin to include pared-down spending, establishing a $900 million financial buffer. Similarly, Missouri’s Governor Mike Kehoe vetoed or froze $500 million due to anticipated future financial challenges. Other states, wary of federal cuts, have also restrained spending.
Several state legislatures, anticipating federal influence on budgets, have put in place safeguards and policies to monitor and adapt quickly. In Montana, funds are allocated to evaluate federal policy impacts, contingent on significant federal funding disruptions. Maryland requires immediate reporting and a plan should federal funding falter significantly. Connecticut’s budget directs swift methodological responses to mitigate impacts on critical programs if federal support wanes.
Legislators in North Dakota have consciously adjourned early to reserve time for revisiting their budget if required. Across the board, states are prioritizing caution and readiness, positioning themselves to react to and absorb the potential repercussions of federal policy changes.