What You Need to Know About State Fiscal Outlook in This Fall

A state's fiscal health is a major determinant of whether it will make policy changes, such as increased or decreased spending and tax cuts or hikes. For state government affairs professionals, monitoring the states' fiscal position is crucial to anticipating and responding to policy shifts. Several times a year, our tax policy team conducts a survey of each state's short-term fiscal outlook to provide the insights needed to stay ahead.

Generally speaking, a majority of states are in stable fiscal condition going into the fall, although several, including many where key tax policy decisions occur, are facing challenges. Many states are outperforming revenue estimates so far this year, meaning several projected deficits have decreased and surplus estimates have increased in states across the country. The fiscal effects of HR 1, the One Big Beautiful Bill Act, are also unclear, as many legislators say they do not understand the bill's impact on their state.

States with Positive Fiscal Outlooks

We currently rate 27 states with a generally positive fiscal outlook. These states are expected to maintain stable budgets and are less likely to face immediate fiscal pressures that could force significant policy changes. One new state to this category is Florida. Previously ranked "conditional," the Sunshine State's outyear revenue forecasts have increased enough that we are comfortable ranking it "positive" for now, though we'll keep a close eye on it.

States with Conditional Fiscal Outlooks

We also have 12 states rated as "conditional," which means a state's revenue health is worth watching and could lead to either future challenges or fiscal stability, depending on policy action or extra-governmental circumstances. As of June, these states are Hawaii, Iowa, Maine, Massachusetts, Minnesota, Mississippi, Missouri, Montana, North Carolina, North Dakota, Nebraska, Rhode Island, and Tennessee. These states, politically and geographically diverse, tend to have unique circumstances that have led to lean budget years. In Nebraska, policymakers have had to deal with recurring, albeit smaller, deficits, with Gov. Jim Pillen (R) ordering additional agency spending cuts in July. On the other hand, Rhode Island, which has been operating on structural deficits, estimators found in May that the state would receive $233 million more over the next two years than planned, giving legislators a bit of breathing room in their next budgeting process.

States Facing Short-Term Fiscal Challenges

Ten states, however, are facing serious short-term fiscal challenges: Alaska, California, Colorado, Illinois, Maryland, New Jersey, New York, Oregon, Pennsylvania, and Washington. Note that projected deficits in several of these states are lower than at the beginning of the year. Many of these states have been overperforming, in large part due to higher consumer spending and market returns than anticipated.

Track and Influence State Tax Policy

Tax policy can be one of the most challenging areas for government affairs executives. MultiState’s team understands the issues, knows the key players, and helps you effectively navigate and engage. We offer a customized, strategic solution to help you develop and execute a proactive multistate tax legislative agenda. Learn more about our Tax Policy Practice.

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