SSTI’s analysis of state revenue outlooks and budgets reveals early warning signs that underscore the importance of expanding investments in TBED initiatives and regional innovation to strengthen state economies, even as states face the prospect of reduced budget flexibility. The states' Fiscal Year (FY) 2028 budget season is rapidly approaching. While most governors will not release their budget proposals until January 2027, and with 36 states possibly electing new governors those spending plans are likely to include multiple or delayed versions; nonetheless, several states, beginning with Colorado, are expected to begin unveiling their proposed spending plans in late October and early November.
Early FY2028 budget outlooks point to widespread fiscal stress, growing structural deficits, and a renewed emphasis on spending restraint. As remaining pandemic-era federal relief funds, including those provided through the American Rescue Plan Act (ARPA), are exhausted, states face slowing tax revenue growth alongside rising costs in Medicaid, K-12 education, and other social safety-net programs. Early revenue forecasts and budget instructions issued to state agencies suggest many states are transitioning from the historic surpluses of recent years to an environment of targeted spending reductions and heightened fiscal discipline.
Some recent developments illustrate the challenges states are likely to face during the FY2028 budget cycle:
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Colorado is experiencing revenue growth that is increasingly being outpaced by rising Medicaid and Supplemental Nutrition Assistance Program (SNAP) costs.
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Idaho, following a 2026 legislative session marked by budget reductions after years of tax cuts, has instructed state agencies to submit bare-bones budget requests as policymakers continue their effort to maintain lower government spending levels.
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Maryland has directed executive branch agencies and public universities to prepare FY2028 budget proposals that include reductions of approximately 3%, while more than two dozen cabinet-level agencies have been asked to develop scenarios containing cuts of up to 10%.
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Washington lawmakers are projecting a budget shortfall ranging from $4 billion to $6.7 billion for the 2027-29 biennium.
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Vermont Governor Phil Scott has instructed agency leaders to develop what could become the leanest state budget proposal in nearly a decade.
Collectively, these developments suggest states are entering the FY2028 budget cycle under significantly tighter fiscal conditions than during the post-pandemic surplus years. As policymakers balance slower revenue growth against escalating program costs, budget proposals are likely to emphasize spending reductions, efficiency measures, and difficult funding tradeoffs.