ICYMI: Major Emerging Legislative Trends in 2025 (Webinar Recap)

As part of MultiState’s client webinar series, we recently sat down four MultiState experts to discuss the major legislative trends shaping state policy in 2025. Here’s what they had to say. 

State Budget Pressures

Currently, most states are working on their 2025 fiscal year budgets (most of those become effective on July 1). Revenues are, for the most part, holding up. What’s more, states have near historic ending fund balances, which includes rainy day funds plus anything else that was in the bank that wasn’t expended last year. Average ending fund balances remain at 24% — nearly triple the pre-pandemic average of 9%

There are a few states that are in a challenging budget situation. Some Democratic-controlled states are facing challenges due to expanded program spending without corresponding revenue increases. On the other side of the aisle, we also see some states that cut taxes and are now facing some budget uncertainty (mainly Republican-controlled states, but some purple and blue states, as well). Some of this was planned — according to one politician, "the whole point of cutting taxes was to reduce revenues coming into the state."

California demonstrates the volatility that states can experience, with projected deficits swinging dramatically back to normal due to stock market performance. Maryland currently faces the most significant budget challenges, with a structural deficit too large to solve through cuts alone. Across the country, Medicaid expenditures are growing faster than forecast, creating additional budget pressure in many states.

One thing to keep an eye on, despite this generally rosy picture — there is much uncertainty regarding what federal-level policies we may see this year (tariffs, Tax Cuts and Jobs Act provisions, and immigration policy changes), all of which will impact state budgets. The national economy has a relatively delayed impact on state revenues, meaning that short-term changes in the economy don't lead to fast changes in states because of the way state tax systems are set up — but they do have pronounced effects. And in fact, small declines in economic activity tend to have an outsized impact on state revenues, but it won’t show up instantaneously. Economic shifts at the national level do eventually impact state revenues, often with amplified effects. Small GDP declines can have a big effect on state revenues, particularly in states that are heavily dependent on personal incomes taxes with higher marginal tax rates. 

State Budget Trends Takeaways:

• Most states are well-positioned to balance their budgets for fiscal year 2026..

• Average ending fund balances remain at 24% — nearly triple the pre-pandemic average.

• A handful of states are facing budgetary challenges mainly due to recent policy choices, such as expanded program spending without corresponding revenue increases, intentional tax cuts, and Medicaid expenditures that are growing faster than forecasts.

• Federal policy uncertainty is likely already having state budgetary impacts, but we won’t see that in the data until later.

Tax Policy Trends

Democratic and Republican-controlled states are pursuing distinct tax strategies that reflect their different philosophies on government revenue and spending In Democratic-controlled states, we're seeing proposals for mandatory unitary combined reporting, most notably from Governor Moore in Maryland. This method of computing corporate taxes is used in about half the states, and the idea continues to spread. Several deep blue states are proposing to go further with worldwide combined reporting, looking at corporate activity globally rather than just within the U.S. Even if these don’t end up passing, it does indicate a trend to keep an eye on. Other examples include extensions of existing corporate income tax surcharges in Connecticut and New York and new or expanded taxes on digital goods and services.

Republican-controlled states are primarily focused on property tax reform, particularly in states like Indiana, Iowa, Missouri, Nebraska, Kansas, and Texas. These efforts typically aim to reduce residential real estate taxes, but often shift the burden to businesses via increased business property or sales taxes to compensate. As one lobbyist in Indiana noted, "They figured out how to cut residential property taxes by about a billion. They just haven't figured out where they're going to get the money to pay for it."

Tax Policy Trends Takeaways

• In Democratic-controlled states we’re seeing proposals on mandatory unitary combined reporting, worldwide combined reporting, extensions of existing corporate income tax surcharges, and digital goods and services taxes.

• In Republican-controlled states, we’re seeing property tax reform focused on residential real estate taxes, potentially shifting the tax burden to businesses.

Technology and Privacy Policy

Artificial intelligence continues to dominate technology policy discussions, with major legislative volume. Over 800 AI-related bills have already been introduced in 2025, compared to approximately 700 bills tracked during the entire previous session. 

“Artificial intelligence” can mean a lot of different things — anything from large language models, such as ChatGPT, to automated decision-making tools that are used to hire employees, or chatbots that are used for customer service. Even if a business isn’t necessarily a tech company, there's a very good chance that the business is deploying artificial intelligence in some capacity and may be subject to some of these regulations being proposed.

Two main regulatory approaches are emerging. The first involves comprehensive regulatory regimes requiring registration, documentation, and assurances against consumer harms (such as algorithmic discrimination or misleading consumers with false information). Colorado was the only state able to accomplish this broad approach last year. It doesn't go into effect until next year, and we expect tweaks will be made to the law before then. For example, small businesses have raised concerns about some of the regulation and compliance requirements. Despite this, it's a landmark bill that likely will act as a template for other states to follow. The second approach targets specific use cases like deepfakes, chatbot disclosures, rent and pricing algorithms, and insurance utilization review. 

Privacy legislation has reached a milestone with 20 states now having comprehensive laws, creating a general consensus on many basic provisions. However, important differences are emerging as blue states push for stronger consumer protections. We're also seeing increased attention on biometric data protections and neural data privacy. Children's online privacy has seen an explosion of legislation, including parental consent for social media accounts, age verification for adult websites, and device filters for electronic devices.

Technology and Privacy Trends Takeaways

• Artificial intelligence continues to dominate technology policy discussions, with high legislative volume.

• Two main AI regulatory approaches have emerged: a comprehensive regulatory regime, or narrower approaches targeting specific use cases like deepfakes or chatbots, for example.

• Privacy legislation has reached a milestone now that 20 states have comprehensive laws, with blue states pushing for stronger consumer protections. We’ve also seen increased legislative attention around biometric data protections, neural data privacy, and children's online privacy protections

Healthcare Policy

Healthcare stands to have the most significant impact on state budgets in the coming years. Medicaid costs have surged beyond projections in multiple states and these challenges may be compounded by potential reductions in federal funding. This will create a critical decision point for states: determining what programs to continue funding when federal support decreases, and equally important, what programs to cut. 

In terms of 2025 policy trends, healthcare affordability remains a top concern for state legislators as costs continue to rise. The approach to healthcare affordability has a clear partisan divide: red states typically focus on incentivizing competition between providers to increase access and reduce costs, while blue states tend to establish more direct cost controls.

Certificate of Need (CON) reform is gaining traction, particularly in red states like Mississippi, Kentucky, Tennessee, and Missouri. These laws, which exist in 35 states, are a set of established review criteria that state health agencies utilize to make a determination of whether a provider can either enter into the state and provide a new service, or if they can build a new facility within a given state. Reform advocates argue that reducing these requirements would enhance market access and organically reduce pricing through competition.

Private equity in healthcare has become a focal point, with 16 states introducing legislation to limit its role. Governors in New York and Connecticut have made this a fundamental part of their policy agendas for 2025, following Massachusetts' reform last year. These efforts often focus on giving state attorneys general enhanced oversight over healthcare transactions. We’ll likely see more of these types of bills over the next few years, specifically exploring if private equity in healthcare reduces quality of care.

Similarly, drug pricing continues to be a significant focus through Prescription Drug Affordability Programs (PDAPs), despite ongoing litigation. Additionally, 340B drug programs are facing challenges around contract pharmacies, with 24 states considering legislation requiring manufacturers to extend discounted pricing to 340B contract entities.

Lastly, we’re starting to see legislation emerge around the coverage for GLP-1 drugs and their use as treatment of obesity. Recently, Colorado made the determination to drop coverage of GLP-1s for purposes of treating obesity from their state employee health plan. Coverage of GLP-1s is still available for the treatment of Type 2 diabetes.

Healthcare Policy Trends Takeaways

• Healthcare affordability remains a top concern for state legislators as costs continue to rise. Policies under consideration include Certificate of Need (CON) reform and restrictions on the role of private equity in healthcare.

• Drug pricing is also a major consideration, with ongoing legislative interest in Prescription Drug Affordability Programs (PDAPs) and expansion of 340B drug programs to contract pharmacies. 

• The debate surrounding coverage for GLP-1 drugs for weight loss creates an interesting dynamic due to the complex potential budget implications.