2025 State Revenues: How Are States Faring?

Several times a year, our tax team does a survey of each state’s short-term fiscal outlook to determine if a state's revenues are relatively stable, or if it will likely face short-term fiscal challenges. A state’s fiscal picture is a major policy driver, so it’s important for state government affairs professionals to keep an eye on state fiscal health.

Based on our most recent review, the majority of states have a generally positive short-term fiscal outlook (34 states in total as of this month). Several states, however, are facing significant short-term challenges (Colorado, Illinois, Maryland, New Jersey, New York, Pennsylvania, and Washington). In Illinois, for example, a preciously positive forecast has been downgraded to a very slim surplus for FY 25, followed by a deficit of $3.2 billion in FY 26. This gap is expected to grow to more than $5.1 billion by FY 30. . Similarly, Maryland is facing a widening budget gap. According to the Department of Legislative Services, the state will be facing a more than $1 billion structural and cash deficit this year with the gap more than doubling in the following two years. The deficit is projected to increase further to $5.9 billion by FY 30. 

We also have a category called “conditional” fiscal outlook, which means a state’s revenue health could go either way, depending on certain current extenuating circumstances. As of December, nine states fall into this category (Alaska, California, Iowa, Massachusetts, Minnesota, Nebraska, Rhode Island, Tennessee, and Utah). While California has faced strong headwinds, the continued strength of the stock market has given the state a surplus, faring much better than a projected $73 billion deficit. For example, Iowa's Revenue Estimating Conference further decreased the state's projected General Revenue forecast in December. State Revenues are now predicted to fall 6.2% in FY 2025, followed by an additional 4.7% in FY 2026. In response, Gov. Kim Reynolds (R) has called for cuts to state spending. Overall fiscal health going forward will depend on how state lawmakers address these lower expected revenues. 

Despite this rosy overall picture, this represents an uptick in the number of states that have challenging fiscal outlooks since we conducted this analysis last summer. In our summer analysis, only four states had challenging short-term fiscal outlooks, and only six had conditional fiscal outlooks. State revenue growth continues to decline as federal pandemic funds dry up, leaving states to address spending and tax cuts enacted over recent years. However, most states are in good shape to take on the years ahead, and several have accumulated large savings accounts to help address the plateauing revenues expected in the latter half of the decade.

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This article appeared in our Morning MultiState newsletter on February 1, 2025. For more timely insights like this, be sure to sign up for our Morning MultiState weekly morning tipsheet. We created Morning MultiState with state government affairs professionals in mind — sign up to receive the latest from our experts in your inbox every Tuesday morning. Click here to sign up.