State Fiscal Debates to Watch in 2024: Substantial Budget Shortfalls

At least 7 states report deficits as fiscal conditions tighten

Navigate to:

State Fiscal Debates to Watch in 2024: Substantial Budget Shortfalls
A close-up of an accounting worksheet with a pen and calculator resting on it at left and right, respectively.
Blake Callahan Getty Images

This article is the second in a series about public finance issues that are likely to capture the attention of lawmakers this year.

After two straight years of double-digit tax revenue growth, states curbed their expectations for fiscal year 2024—and some are still coming up short. At least seven states are reporting deficits in the current or upcoming fiscal year, including a record $58 billion shortfall through fiscal 2025 in California. Budget analysts in Sacramento cite declining home sales and reduced business investment, due in part to higher interest rates, while Governor Gavin Newsom’s (D) office projects a smaller deficit and attributes it mainly to delayed income tax collections that made accurate revenue forecasting difficult.

Elsewhere, lawmakers will have to grapple with the effects of increased costs, tax cuts, or both. For example, in response to a federal judicial order, Arizona plans at least a one-third increase in prison medical spending, even as lawmakers deal with a projected state budget deficit of more than $400 million. Analysts attribute most of the shortfall to a larger-than-expected drop in income tax revenue after a major tax cut went into effect in 2023. And Maryland is struggling with increased costs from a major school funding law and the expansion of its Earned Income Tax Credit while its structural budget shortfall is projected to widen to $2.2 billion by fiscal 2028. A recent report by the state comptroller notes that Maryland’s slowing economic growth and related budget problems predate the pandemic—a signal that lawmakers may have to adopt both revenue-raising and cost-cutting measures to resolve the structural imbalance

Other states contending with deficits include Alaska, Illinois, Massachusetts, and New York. In Minnesota, budget forecasters have warned that the state is on track to face a shortfall beginning in 2026. 

Thanks to record reserves in rainy day funds, many states are well prepared to weather a revenue slowdown. Alaska Governor Mike Dunleavy (R), for example, has proposed using savings to cover the state’s nearly $1 billion deficit. Still, most states are likely to rely on a mix of rainy day savings, revenue-raising measures, and spending cuts. Debates are already heating up among stakeholders and policymakers who advocate for higher taxes on the wealthy and those who want to curb government spending. In New York, progressive lawmakers are pushing for several new or higher taxes on the wealthy and on corporations even as Governor Kathy Hochul (D) has vowed not to raise income taxes this session. 

Tighter fiscal conditions could also affect recruitment in understaffed areas such as public safety and health because policymakers may be less able to offer bonuses and raise wages. Budget-management tactics such as hiring or salary freezes may require a more nuanced approach. For example, the Virginia Department of Corrections is imposing a 90-day hiring freeze as part of its response to a budget shortfall, but exempting prison guards. The department previously used signing bonuses, overtime pay, and retention bonuses to reduce its 33% vacancy rate for corrections officers and senior corrections officials. As of December 2023, 1 in 4 positions were still vacant.

Liz Farmer works on The Pew Charitable Trusts’ state fiscal policy project. 

Spotlight on Mental Health


State Budget Problems Spread

Quick View

For the first time since 2020, state governments must confront broadly shared budget challenges. Some of the most populous states—including California, New York, and Pennsylvania—face among the most serious problems, but these governments are not alone.

What is Budget Stress Testing?
What is Budget Stress Testing?

States Should Measure Budget Risks

Quick View

Responsible state fiscal policy requires more than just balancing the current year’s budget. It must also include ensuring that the budget is on a sustainable path. Otherwise, policymakers cannot have the lasting impact they hope for: They may act to improve state services or cut taxes only to have to scale those efforts back later. This risk is especially high in the aftermath of the COVID-19 pandemic.

Composite image of modern city network communication concept

Learn the Basics of Broadband from Our Limited Series

Sign up for our four-week email course on Broadband Basics

Quick View

How does broadband internet reach our homes, phones, and tablets? What kind of infrastructure connects us all together? What are the major barriers to broadband access for American communities?

What Is Antibiotic Resistance—and How Can We Fight It?

Sign up for our four-week email series The Race Against Resistance.

Quick View

Antibiotic-resistant bacteria, also known as “superbugs,” are a major threat to modern medicine. But how does resistance work, and what can we do to slow the spread? Read personal stories, expert accounts, and more for the answers to those questions in our four-week email series: Slowing Superbugs.

Explore Pew’s new and improved
Fiscal 50 interactive

Your state's stats are more accessible than ever with our new and improved Fiscal 50 interactive:

  • Maps, trends, and customizable charts
  • 50-state rankings
  • Analysis of what it all means
  • Shareable graphics and downloadable data
  • Proven fiscal policy strategies


Welcome to the new Fiscal 50

Key changes include:

  • State pages that help you keep track of trends in your home state and provide national and regional context.
  • Interactive indicator pages with highly customizable and shareable data visualizations.
  • A Budget Threads feature that offers Pew’s read on the latest state fiscal news.

Learn more about the new and improved Fiscal 50.