States Are Facing Slower Revenue and Tougher Budget Choices

State governments are feeling financial pressure this year. Tax revenue is leveling off, while expenses continue to rise. As fiscal year 2025 gets underway, many states are finding that their earlier budget projections are no longer holding up.

Lower Revenue, Higher Costs

After a few years of strong tax collections, many states now report little to no growth in revenue. At the same time, costs are climbing. Health care, pensions, and general operations are becoming more expensive. Budget officers are adjusting their expectations for 2026, warning that there may be less money to work with than previously thought.

Savings Offer Some Breathing Room

Even with this shift in revenue, most states are not in a crisis. Many have set aside solid rainy-day funds. Over half of them have savings that equal more than 10 percent of their general fund spending. Debt remains low in many places, which helps. These reserves give leaders a buffer, though hard choices may still be necessary. Some states may delay hiring, pause new projects, or reduce spending to balance their books.

AI and Public Responsibility

The article "States Face Slowing Revenue, Difficult Budget Environment" briefly mentioned the use of artificial intelligence in public safety. This sparked a comment from SmartFusion Sales Executive Yolanda Bailey. She said:

“The article discussed how even though AI is a part of the present and future, using AI-driven software (in this case for police) needs to be held accountable, adhering to legal, ethical, and constitutional stipulations.”

Her point highlights the need for any use of technology in government to stay within legal and moral limits. It is not enough for software to be efficient. It must also be responsible.

Looking Ahead

As states plan for the next budget year, they face slower income and growing costs. While many still have strong savings, the gap between revenue and expenses is real. At the same time, interest in technology, such as AI, continues to grow in government spaces. Leaders will need to be thoughtful in both spending decisions and how new tools are used.