State lawmakers entered 2026 confronting significant fiscal challenges. Many states trimmed budgets during the 2025 session to close shortfalls, but the budget pressure persists. Rising healthcare and education costs continue to be the most significant cost drivers on state budgets, and federal cost shifts in Medicaid and the Supplemental Nutrition Assistance Program (SNAP) deepen the problem. Governors and legislators will be forced to consider cuts to core services and may avoid bills with large fiscal notes to limit new spending.
Beyond spending cuts, states are weighing the elimination of tax incentives, targeted tax increases and other program reductions in what is shaping up to be a difficult budget environment. Even a fiscally strong state like Florida, which entered 2026 with a sturdy fiscal foundation following a $117.4 billion fiscal year (FY) 2025-26 budget, substantial reserves and more than $2 billion in tax relief, is signaling caution. Florida state budget leaders warn that revenue growth is flattening and urge disciplined spending.
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