Federal Funding Cuts Strain State Budgets

Pandemic aid expiration and policy changes force states to make tough financial decisions

Mar. 16, 2026 at 9:50am

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A combination of federal funding cuts, the end of pandemic aid, and long-term fiscal trends are putting significant strain on state budgets across the country. States are grappling with how to make up for billions in lost funding for programs like Medicaid and SNAP, which provide critical support for low-income residents. While some states are exploring options like tax increases, others are being forced to make difficult choices about cutting services or finding new revenue sources.

Why it matters

The federal funding changes will have immediate, medium-term, and long-term impacts on state budgets, forcing states to find new administrative dollars, account for Medicaid and SNAP cost increases, and plan for gradual regulatory changes. This comes at a time when many states are already facing economic uncertainty and uneven recovery from the pandemic, putting significant pressure on state leaders to show leadership in addressing these fiscal challenges.

The details

The federal One Big Beautiful Bill Act is cutting billions in funding for state programs like Medicaid and SNAP, while the expiration of COVID-19 relief funds is also straining state budgets. States like Kansas are projected to lose over $3.9 billion in Medicaid funding over the next 10 years, potentially leaving more residents uninsured. In Arizona, legislators are grappling with three options - fully conform to the new regulations, do the bare minimum, or not conform at all - each with significant budget implications. Tennessee is also facing the loss of federal Summer EBT program funds, which provided grocery benefits to families of students receiving free school meals.

  • The One Big Beautiful Bill Act's funding cuts will be implemented over the next 10 years.
  • The COVID-19 relief funds allocated through the American Rescue Plan Act must be spent by the end of 2026.

The players

Donald Trump

The former U.S. president whose One Big Beautiful Bill Act is the source of the federal funding cuts impacting state budgets.

Laura Kelly

The governor of Kansas, whose state budget plans $15 million to handle increased caseloads in the Children's Health Insurance Program due to Medicaid funding cuts.

Stephanie Stahl Hamilton

An Arizona state representative who says the biggest impact of Trump's 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 funding cuts.

Bill Lee

The Republican governor of Tennessee who has declined to opt into the federal Summer Electronic Benefit Transfer program for two consecutive years, leaving hundreds of thousands of children without access to summer meals.

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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, United Methodist Health Ministry Fund (coloradonewsline.com)

“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, State Representative, Arizona (coloradonewsline.com)

“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, Arizona State University (coloradonewsline.com)

What’s next

The judge in the Kansas case will decide on Tuesday whether to allow the alleged Waymo vandal, Walker Reed Quinn, to be released on bail.

The takeaway

This wave of federal funding cuts is forcing states to make difficult choices about how to balance their budgets and maintain critical services for residents, highlighting the need for state leaders to show innovative and strategic fiscal management in the face of these challenges.