5 State Fiscal Debates to Watch
Key policy issues that are likely to affect budget considerations in 2026
As legislative sessions begin in statehouses throughout the country, lawmakers face a host of policy questions that will affect state budgets. The Pew Charitable Trusts’ annual Debates to Watch series previews five of the most pressing fiscal issues each year. Here’s what state leaders are likely to take on in 2025.
Debate 1: A New Budget Era for States
The budget decisions that states make in 2026 are likely to be defined by an increasingly perilous long-term fiscal outlook. For some states, the coming year might represent their last opportunity to prepare before budget stress begins in earnest. For others, budget shortfalls have already begun, and lawmakers will need to contend with short-term problems and get ready for long-term ones.
Debate 2: New Medicaid Policies
Medicaid—the health care provider for roughly 1 in 5 Americans and the largest single source of federal funding for state governments—is entering a period of major change that could reshape state budgets for years to come. State policymakers now face the task of managing the budgetary and operational impacts of some of the most sweeping revisions in Medicaid’s 60-year history while contending with substantial and growing underlying cost pressures. The program provides comprehensive coverage for health and long-term care to about 70 million low-income people nationwide.
Debate 3: SNAP Changes Shift Costs
The Supplemental Nutrition Assistance Program (SNAP) provides monthly food stipends for nearly 42 million low-income Americans. For decades, SNAP has been basically the same: States run it and pay half the administrative costs, while the federal government covers the other half and provides 100% of the monthly benefits. But the 2025 federal reconciliation law sought a major rebalancing of fiscal responsibility among levels of government, including new SNAP provisions that will push onto states billions of dollars in costs that were previously incurred at the federal level.
Debate 4: Federal Disaster Funding to States
As the frequency and cost of natural disasters have increased nationwide, states’ approaches to budgeting for catastrophic events have relied heavily on the ready availability of federal funding. But now there is growing uncertainty about the entire disaster assistance system, which traditionally has funded activities before, during, and after the occurrence of disasters.
Debate 5: Efficiency and Tech Innovation
Throughout the country, states are racing to improve efficiency and modernize government—streamlining services, digitizing operations, and rethinking how employees do their work. These efforts are accelerating as tightening budgets collide with rapid advances in technology, including generative artificial intelligence (AI), that make efficiency goals that once were out of reach now seem attainable.
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