Members of the Maine House of Representatives during the first session of 2024 in the State House in Augusta. (Photo by Jim Neuger/Maine Morning Star)
Even before taking office last week, Washington Gov. Bob Ferguson had proposed $4 billion in spending cuts.
That was on top of some $2 billion in cuts already proposed by his predecessor, fellow Democrat Jay Inslee.
Like many states, Washington faces a substantial budget gap that will require some combination of spending reductions or tax increases. After years of growth, state revenues are leveling off despite a robust national economy. States face the same inflation as consumers and have been pinched with the costs of their recent tax cuts and the end of federal pandemic aid that pumped up spending.
While most states aren’t being forced to take drastic measures yet, many are struggling to balance their budgets. Leaders of several states are proposing cutting social programs such as child care, victim services and Medicaid, or raising taxes on cigarettes, spirits or households with the highest incomes.
“For 2025, we really see an inflection point where more states have budget shortfalls and more states will actually need to make difficult choices in order to deal with those shortfalls and to balance their budgets,” Josh Goodman, who studies state fiscal health at the nonprofit The Pew Charitable Trusts, said during a briefing with reporters last week.
This year, budget problems aren’t reserved just for states that chronically struggle with finances, Goodman said. States with stronger fiscal records, such as Colorado and Maine, are also facing huge budget holes.
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And Goodman warned that things could get worse: In states including Florida, Illinois and New York, deficits are projected to grow over the coming years — despite the strong national economy.
“You’d expect to see budget problems when the economy is struggling,” he said. “It’s more surprising and more concerning when the economy is doing well, because it raises the question of, well, if the economy did take a downward turn, how bad would the problems be?”
In Washington state, the deficit is projected to top $12 billion over the next four years.
While Inslee had floated raising taxes on the wealthiest residents and certain businesses that earn more than $1 million per year, the new governor has leaned into spending cuts to balance the books. Ferguson, who was inaugurated Jan. 15, said he would not consider tax increases “until we have exhausted efforts to improve efficiency.” He has proposed a 6% cut to most state agencies, slicing in half the amount spent on out-of-state employee travel and reducing many positions in state government. But it’s unclear whether lawmakers will want to cut that deep.
“The cuts that we learned about in the inaugural address would be devastating,” said Democratic state Rep. Timm Ormsby, who leads the House Appropriations Committee.
State law requires Washington lawmakers to balance budgets over a four-year period. State revenues fell well short of forecasts while the state continued expanding eligibility for programs such as Medicaid and child care subsidies, Ormsby said.
While some combination of tax increases and spending cuts may be necessary, Ormsby said, he’s interested in potentially drawing back recent state commitments to increase funding of programs including early learning and child care.
But lawmakers are just starting to tackle their budget challenge, he said. “It’s a big deal.”
‘More with less’
Across the country, blue and red states alike are facing similar dilemmas as revenues decline after several years of burgeoning budgets.
Cumulatively, state general funds — the primary pot of funds that run state governments — increased every fiscal year between 2011 and 2024, according to the National Association of State Budget Officers. But state general funds declined by 0.3% for fiscal year 2025, which began in July in most states.
For now, many states are weighing a combination of tax increases, spending cuts and one-time transfers from reserve funds.
Facing a $432 million shortfall over two years, Nebraska Republican Gov. Jim Pillen last week proposed cutting millions from higher education, raising taxes on cigarettes, spirits and fantasy sports, and adding new taxes on candy and soft drinks. The governor called for “a return to normal pre-pandemic spending levels” and reeling in recent legislative spending on business incentives, Medicaid translation services and treatment courts that help military veterans avoid criminal prosecution.
“We can do more with less,” he wrote to lawmakers in his 2025-2027 budget proposal last week.
In Maryland, Democratic Gov. Wes Moore pledged to slash millions from government inefficiencies, targeting the state’s real estate agreements, vehicle fleet and even employee laptops. He aims to cut $2 billion in spending, move half a billion from state reserves and restructure the tax code to help close a projected $3 billion deficit in the upcoming fiscal year.
But Moore said the state cannot tax or cut its way to prosperity. Rather, he said the state must improve its economy. “Growth is the answer,” he said last week at a news conference outlining his budget proposal.
Many states are seeing revenue declines after dramatically slashing taxes. In recent years, all but two states cut their taxes in one form or another, according to the Tax Policy Center.
In the 2023 and 2024 fiscal years, states saw nearly $29 billion in total revenue reductions from tax changes, according to the National Association of State Budget Officers.
More states have budget shortfalls and more states will actually need to make difficult choices in order to deal with those shortfalls.
– Josh Goodman, The Pew Charitable Trusts
With flush reserves and the knowledge that federal funds would dry up, state budget officials expected the current conditions, said Brian Sigritz, director of state fiscal studies at the association.
After years of extraordinary spending, states are now returning to more normal patterns as they prepare next year’s budgets, he said. And they anticipate continued slower growth in the coming years.
Some states have implemented broad savings measures such as hiring freezes. But Sigritz said most have been able to balance budgets with less drastic cuts and targeted tax increases.
“We’re not seeing, like we saw during the Great Recession, widespread budget cuts,” he said. “But states are taking various different steps to manage their budget.”
A balancing act
In Maine, lawmakers are looking to fill a $450 million gap between revenues and expected expenditures over the next two years.
Democratic Gov. Janet Mills proposed a mix of tax increases and spending cuts. Those include a $1 increase in Maine’s cigarette tax — from $2 per pack to $3. She also pitched reducing stipends for child care workers back to 2022 levels and cutting state support for sexual assault support centers, children’s advocacy centers and domestic violence resource centers.
Those cuts would come at a time of rising demand for services, Elizabeth Ward Saxl, executive director of the Maine Coalition Against Sexual Assault, told reporters in Augusta last week.
“The idea of having reduced staff with increased demand and services getting more and more expensive to provide just feels so hard,” Ward Saxl said. “Staff are already asked to do so much, like being on call, 24/7. We just really can’t lose this funding.”
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Maine’s economy remains strong, though state revenues are leveling off and the costs of government programs have increased, said state Rep. Drew Gattine, a Democrat and appropriations committee chair.
He said lawmakers want to maintain their recent investments in popular programs such as tuition-free community college and free meals for all K-12 school students.
“The story of this budget is trying to do the best job that we can of matching up the revenues that we have with the cost of programs that are very, very important but continue to cost more,” he said.
To quickly pass and implement a budget, Maine lawmakers would need two-thirds support — a challenge given Democrats’ slim majority.
And Maine Republicans won’t support any new tax increases, said state Rep. John “Jack” Ducharme III, the GOP’s ranking member on the appropriations committee.
Ducharme said lawmakers must reduce spending to balance the budget, suggesting cuts to the state Medicaid program, which covers one-fifth of the state’s population. He pointed to the more than 94,000 adults without children who are covered.
“We think that there are a number of areas there that perhaps some trimming could be done without really, truly affecting the people that are absolutely needing care,” he said. “ … We’ve been saying for quite a while that we don’t have a revenue problem — we have a spending problem.”
This story was originally published by Stateline. Like Maine Morning Star, Stateline is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Stateline maintains editorial independence. Contact Editor Scott S. Greenberger for questions: info@stateline.org.
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