With a new budget year beginning in 46 US states, most legislatures already have their budgets in place without knowing how proposals by President Donald Trump for “Big Beautiful Bill” tax cuts and reductions in federal support for major safety-net programs will rattle their finances.
A New Fiscal Year, But Bigger Questions Remain
With Trump advocating for cutting taxes and federal expenditures on important safety-net programs, a majority of American states are in the dark about how deep the reductions may be.
From Medicaid to food stamps, the stakes are high. While some US states are bulking up rainy day funds or anticipating emergency sessions, others are likely to be caught flat-footed. Here’s what we know so far about Trump’s huge tax bill, what it entails and why its passage may see many US states scrambling to cover federal funding shortfalls, according to a report published by The Associated Press on Tuesday.
Which Programs Would Likely Be Most Affected?
The legislation, if enacted, would cut federal funding for key programs including Medicaid and SNAP (food stamps), which form a substantial chunk of state budgets.
“If there are dramatic reductions, states wouldn’t be able to entirely absorb those,” Brian Sigritz, head of state fiscal studies at the National Association of State Budget Officers, told The Associated Press.
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Medicaid constitutes roughly 30% of state expenditures alone, as per the KFF (formerly Kaiser Family Foundation), frequently surpassing even public education. Since most Medicaid is paid for by the federal government, any slashes would put pressure on state budgets. Pared-down changes, including new work requirements, would likely take millions off the Medicaid rolls, lowering federal spending while imposing a burden on the states, the report said.
SNAP, on the other hand, has traditionally been funded solely by the federal government for benefits and divided on a 50/50 basis for administrative costs. Trump’s proposal would seemingly require states to do more either by making them spend more or reducing the programs.
States Are Prepping, But Many Could Be Running Out of Time
Most legislatures adjourned before Trump’s bill specifics were made public. Some states, however, acted early:
- New Mexico established a Medicaid trust fund of at least two billion dollars to provide a buffer against shortfalls in federal support.
- Hawaii reserved an additional $200 million in the general fund and could summon a special session.
- Vermont reserved $110 million for possible reductions, with $50 million of that available for withdrawal.
Even Florida, which wasn’t directly responding to Trump’s bill, approved a proposed constitutional amendment to reserve as much as $750 million annually in reserves, according to the AP report.
Governors Move to Reel In Spending
In Virginia, Gov. Glenn Youngkin vetoed dozens of budget items last month in May, reportedly providing a $900 million cushion. “There are some short-term risks as President Trump reshapes both fiscal spending in Washington and trade policies which compel us to be wise and not spend the entire amount of the projected surplus before we put it in the bank,” the AP quoted Youngkin as saying.
In Missouri, Gov. Mike Kehoe vetoed or blocked around $500 million in spending on grounds of the necessity “to rein in unsustainable spending.”
How Some US States Are Gearing Up For a Shift
Amid uncertainty over the big beautiful bill, some states are believed to be rehearsing a shift:
* Montana spent $50,000 for an impact study, only if substantial federal funds are pulled.
* Maryland has called for a report if federal cuts reach one billion dollar or more.
* Connecticut has charged its budget office with finding money to continue essential services if it had to cut.
* North Dakota left legislative days on the calendar to come back and work quickly if necessary.
National Conference of State Legislatures’ Erica MacKellar told the publication that states are adopting “really conservative budgets”, while recognising that they might have to “sort of revise them in special sessions or deal with changes in next year’s sessions.”
What’s Next?
The majority of states won’t yet know how far Trump’s “Big Beautiful Bill” will reach them until it’s signed or not. Until that time, it’s a waiting game of watch and hope that they’ve saved enough.
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