Federal Cuts Pose Budget Challenges for Many States

Expiring pandemic aid and new federal policies create fiscal pressures for state governments

Mar. 16, 2026 at 10:05pm

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A combination of federal policy changes, the end of pandemic aid, and long-term fiscal trends are creating budget challenges for many states. Federal funding cuts to programs like Medicaid and SNAP are forcing states to find ways to make up for billions in lost revenue, while the expiration of COVID-19 relief funds is further straining state budgets. Lawmakers in states like Kansas, Arizona, and Tennessee are grappling with how to lessen the impact on residents who rely on these social services.

Why it matters

The federal funding changes will have immediate, medium-term, and long-term impacts on state budgets. States will have to find new administrative dollars to process the regulatory changes, account for early Medicaid cuts, and eventually implement gradual policy shifts like the SNAP cost shift requirement. This comes at a time when many states are already facing economic uncertainty and uneven recovery from the pandemic.

The details

The federal One Big Beautiful Bill Act is cutting billions in state funding for Medicaid, SNAP, and other social programs. Kansas is projected to lose over $3.9 billion in Medicaid funding over the next 10 years, while Arizona faces difficult choices on how much to conform to the new regulations. Tennessee is moving to seek federal Summer EBT funding after the governor declined to opt in for two consecutive years, leaving hundreds of thousands of children without summer meal assistance. Meanwhile, states like Virginia and Colorado are dealing with other fiscal pressures like federal workforce reductions and budget deficits.

  • The federal One Big Beautiful Bill Act's cuts to state funding will be implemented starting in the next fiscal year.
  • Arizona must implement the Medicaid enrollment changes required by the federal bill by January 1.
  • Tennessee's legislation to participate in the federal Summer EBT program would require the state to do so as long as the program remains available.

The players

Laura Kelly

The governor of Kansas, whose fiscal year 2027 budget includes $15 million to handle the increased caseload in the Children's Health Insurance Program.

Stephanie Stahl Hamilton

A Democratic state representative in Arizona who says the biggest impact of the federal bill will be felt in health care and social services.

Dennis Hoffman

A professor of economics at Arizona State University who says the state does not have enough 'rainy day' funds to backfill the programs impacted by the federal bill.

Bill Lee

The Republican governor of Tennessee who declined to opt in to the federal Summer EBT program for two consecutive years.

Abigail Spanberger

The newly sworn-in Democratic governor of Virginia whose proposed budget aims to offset expenses for housing, health care, and energy costs.

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What they’re saying

“It's really going to trickle down to Kansas in a way that just makes (residents') lives harder economically. It's going to make it tougher to get those supports like Medicaid or help putting food on their table, which is really too bad.”

— David Jordan, President and CEO of the United Methodist Health Ministry Fund

“In the six years that I've been here, this is the first time that we have not gone into session saying, 'Yeah, we're going to rubber-stamp conform to the federal and keep right on marching.'”

— Stephanie Stahl Hamilton, Democratic state representative

“We're going to cut income taxes again this session to conform with the Big Beautiful Bill. So, it just means that there's less limited resources to go around to support other things.”

— Dennis Hoffman, Professor of economics at Arizona State University

“Prices have been rising for years. But the economic uncertainty and instability coming out of Washington (D.C.) over the past 12 months, particularly for Virginia, have made things undeniably worse.”

— Abigail Spanberger

“Colorado's budget didn't break by accident. It broke because politicians at the Capitol keep chasing new programs and bigger government while shortchanging the basics that families actually rely on, like schools, health care providers and services people use every day.”

— Barbara Kirkmeyer, Republican state senator (The Colorado Sun)

What’s next

The judge in the case against Walker Reed Quinn in San Francisco will decide on Tuesday whether or not to allow him out on bail.

The takeaway

This confluence of federal funding cuts, expiring pandemic aid, and long-term fiscal trends is creating a 'perfect storm' for many state budgets, forcing lawmakers to make difficult choices about how to maintain critical social services and support for their residents. States will need to demonstrate leadership in navigating these challenges in the months and years ahead.