Before taking office last week, Washington Gov. Bob Ferguson proposed $4 billion in spending cuts.
This is on top of approximately $2 billion in cuts already proposed by his predecessor, fellow Democrat Jay Inslee.
Like many states, Washington faces a significant budget gap that will require a combination of spending cuts and tax increases. After years of growth, state revenues are stabilizing despite a sturdy national economy. States are struggling with the same inflation as consumers and are agonizing over the costs of recent tax cuts and the end of federal pandemic aid that have boosted spending.
While most states are not yet forced to take drastic measures, many are struggling to balance their budgets. Leaders in several states are proposing cuts to social programs such as child care, victim services and Medicaid, or raising taxes on cigarettes, spirits or high-income households.
“We really see a tipping point in 2025 where more states will have budget shortfalls and more states will have to make difficult choices to deal with those shortfalls and balance their budgets,” Josh Goodman, who studies public finances at the University nonprofit The Pew Charitable Trusts, said last week during a briefing with reporters.
Goodman said budget problems this year aren’t unique to chronically financially strapped states. States with stronger fiscal records, such as Colorado and Maine also face huge budget holes.
Goodman warned that the situation could get worse: In states such as Florida, Illinois and New York, deficits are expected to grow in the coming years – despite a sturdy domestic economy.
“Budget problems are to be expected when the economy is struggling,” he said. “It’s more surprising and concerning when the economy is doing well because it begs the question how bad the problems would be if the economy actually declined.”
Washington state’s deficit is projected to exceed $12 billion over the next four years.
One sec Insle floated by raising taxes on the wealthiest residents and some businesses that earn more than $1 million a year, the recent governor has opted for spending cuts to balance the books. Ferguson, whose inauguration took place on January 15, said he would not consider a tax boost “until we have exhausted efforts to improve efficiency.” He proposed a 6% reduction. most state agencies, cutting in half the amount spent on out-of-state employee travel and cutting many positions in state government. But it’s unclear whether lawmakers will want to make cuts that deep.
“The cuts we learned about in the inaugural address would be devastating,” said Democratic Rep. Timm Ormsby, who heads the House Appropriations Committee.
State law requires Washington state lawmakers to balance their budgets over a four-year period. Ormsby said state revenues were well below projections while the state continued to expand eligibility for programs such as Medicaid and child care subsidies.
While Ormsby said a combination of tax increases and spending cuts may be necessary, he is interested in potentially rolling back the state’s recent commitments to boost funding for early childhood education and care programs.
But he added that lawmakers are just beginning to address the budget challenges. “It’s a big deal.”
“More for less”
Across the country, both blue and red states are facing similar dilemmas as revenues decline after several years of growing budgets.
State general funds — the main pool of funds serving state governments — grew in each fiscal year from 2011 to 2024, according to cumulative data. National Association of State Budget Officials. However, state general funds declined 0.3% in fiscal year 2025, which begins in July in most states.
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For now, many states are considering a combination of tax increases, spending cuts and one-time transfers from reserve funds.
Last week, Nebraska Republican Gov. Jim Pillen faced a $432 million dollar shortfall over two years proposed cutting millions out of higher education, raising taxes on cigarettes, spirits and fantasy sports, and adding recent taxes on candy and pliable drinks. The governor called for a “return to normal pre-pandemic spending levels” and referenced recent legislative spending on business incentives, Medicaid translation services and treatment courts that facilitate military veterans avoid criminal prosecution.
“We can do more with less” he wrote to parliamentarians in its 2025-2027 budget proposal last week.
In Maryland, Democratic Gov. Wes Moore he promised to cut millions against government inefficiency by attacking state real estate contracts, vehicle fleets, and even employee laptops. He plans to cut spending by $2 billiontransfer half a billion from state reserves and restructure the tax code to facilitate close a projected $3 billion deficit in the coming fiscal year.
But Moore said the state cannot tax or limit its path to prosperity. Rather, he said the state needs to improve its economy. “Development is the answer,” he said he said last week at a press conference where he presented his budget proposal.
Many states are seeing revenue declines after dramatically cutting taxes. According to the report, “In recent years, all but two states have reduced their taxes in one form or another Tax Policy Center.
In fiscal years 2023 and 2024, states saw nearly $29 billion in total revenue reductions from tax changes, according to the National Association of State Budget Officials.
With full reserves and the knowledge that federal funds would run out, state budget officials expected the current conditions, said Brian Sigritz, director of state fiscal research for the association.
After years of extraordinary spending, states are now returning to more normal patterns as they prepare next year’s budgets, he said. They also predict a further slowdown in growth in the coming years.
Some states have implemented sweeping austerity measures, such as hiring freezes. But Sigritz said most have managed to balance their budgets with less drastic cuts and targeted tax increases.
“We are not seeing widespread budget cuts like we saw during the Great Recession,” he said. “But states are taking various steps to manage their budgets.”
Balancing effect
In Maine, lawmakers want to close a $450 million gap between revenues and expected expenses over the next two years.
Democratic Gov. Janet Mills proposed a combination of tax increases and spending cuts. These include a $1 boost in Maine’s cigarette tax, from $2 a pack to $3. She also proposed reducing stipends for childcare workers to 2022 levels and reducing state support for support centers for victims of sexual violence, child support centers and domestic violence support centers.
These cuts will come at a time of growing demand for services, according to Elizabeth Ward Saxl, executive director of the Maine Coalition Against Sexual Assault. he told reporters in August last week.
“The idea of reducing staff numbers with increased demand and increasingly expensive services seems extremely difficult,” Ward Saxl said. “So many things are already required of staff, such as being on call 24/7. We simply cannot lose this funding.”
Maine’s economy remains sturdy, although state revenues are stabilizing and costs of government programs have increased, said state Rep. Drew Gattine, chairman of the Democratic and Appropriations committees.
He said lawmakers want to maintain their recent investments in popular programs like free community college and free meals for all K-12 students.
“The story of this budget is that we’re trying to do our best to match our revenues to the costs of programs that are very, very important but still cost more,” he said.
To quickly pass and implement a budget, Maine lawmakers would need two-thirds support, which would be a challenge given Democrats’ slim majorities.
Maine Republicans won’t support any recent tax increases, said state Rep. John “Jack” Ducharme III, the GOP ranking member on the Appropriations Committee.
Ducharme said lawmakers need to cut spending to balance the budget, suggesting cuts to the state’s Medicaid program, which covers one-fifth of the state’s population. He emphasized that over 94,000 adults without children are covered by insurance.
“We think there are a lot of areas where maybe some changes could be made without really impacting people who absolutely need care,” he said. “…We have been saying for a long time that we don’t have a revenue problem – we have a spending problem.”
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