Tax & Budgets
State Revenue Challenges Mount Despite Record Rainy Day Funds (State Fiscal Health Update)
June 24, 2026 | Andrew Jones
Twenty-six states have a generally positive state fiscal outlook as of summer 2026, while 10 states face serious short-term revenue challenges including California, New Jersey, and New York. California's state budget deficits are projected to total $24 billion through FY2028, with a combination of tax increases and spending cuts expected to address the gap. Fourteen states are rated as "conditional" for fiscal health, meaning their revenue situation could shift toward either stability or challenges depending on policy decisions and economic conditions. State revenue challenges have increased for the second consecutive year, with the number of fiscally stable states dropping from 40 two years ago to just 26 today. Despite growing budget pressures, many states have built up historically high rainy day funds that can help cushion the impact of revenue shortfalls.
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