All eyes in statehouses in recent weeks have been on federal budget negotiations, and now that the “megabill” has passed, they are focused in on their own budgets in search of ways to cope with the enormous consequences coming their way. All states will see fewer federal dollars flowing through their coffers, higher needs due to federal cuts, and likely also higher prices due to tariffs and other economic woes. And some states face significant potential revenue impacts due to being coupled to federal tax provisions that are changing.
Officials in Georgia and New York, for example, are directly warning about the budgetary fallout they’ll face, those in Arizona and Montana are studying possible costs of coupling to tax changes, and agencies in Nebraska are being ordered to prepare for 10 percent budget cuts without clear explanation. In other states, including Kentucky, tax and budget experts are doing the math and urging officials to prepare.
State Roundup
- Tuscaloosa and Mountain Brook are suing ALABAMA over the design of the sales tax distribution for online purchases. The current structure redistributes the tax proportionally to all counties and cities in the state rather than being targeted at the municipality and county the buyer lives in.
- According to officials in ARIZONA, the state could see a revenue loss of $381 million if they retain conformity with the federal tax code and opt to couple to other provisions and changes under Trump’s megabill.
- COLORADO has technically already decoupled from the Trump megabill provision that exempts overtime pay from taxes, as language was included in a broad tax expenditure overhaul bill that was approved earlier in the year.
- DISTRICT OF COLUMBIA Councilmember Zachary Parker proposed a capital gains surcharge—like the one that passed in Maryland earlier this year. The plan is being proposed as the mayor has taken steps to raise revenue by eliminating the recently passed Child Tax Credit and baby bond program.
- GEORGIA Gov. Brian Kemp is warning state agencies to prepare for tight budgets as the implications of the federal megabill are realized in the states.
- LOUISIANA lawmakers passed a sales tax break on luxury boats. The bill, now signed by Gov. Jeff Landry, caps state and local sales tax on the purchases of boats at $20,000. With the average state-local sales tax equaling 10 percent, this means boat owners will reap the benefits after a boat’s sale exceeds $200,000.
- MINNESOTA is sending out their first round of advance payments for their Child Tax Credit, making the state the first to formally administer advance payments of a state CTC.
- The MISSOURI Supreme Court ruled that counties and cities cannot “stack” cannabis taxes. This means incorporated cities and villages may levy their own cannabis taxes, but counties may only collect on unincorporated areas.
- MONTANA could see a revenue loss of $114.2 million if they retain conformity with the federal tax code and the changes resulting from the passage of the Trump megabill.
- NEBRASKA Gov. Jim Pillen is ordering state agencies to submit ideas for 10 percent budget cuts totaling $500 million. Gov. Pillen claims the cuts are part of a general plan to shrink government rather than a reaction to recent revenue underperformance, looming federal cuts, or the tax cuts enacted in recent years that the governor and others insisted the state could afford without slashing services.
- NEW YORK state is facing an estimated $3 billion fallout next year alone from budget cuts in the federal megabill.
- The OHIO House voted to override Gov. Mike DeWine’s veto of a provision in the state budget that removes local authority to put replacement property tax levies and emergency levies on the ballot. The override now moves to the Ohio Senate for consideration. The House only voted on one of three overrides that leaders scheduled related to property taxes. The other provisions the House is attempting to override would give local county budget commissions increased control over levy amounts and allow additional reductions in districts that have already reduced rates to the floor of the state’s 20-mill minimum. The remaining override attempts could be on the docket when the House returns in the fall.
- A TEXAS appellate court has upheld the state’s “Death Star” act, which precludes cities from adopting ordinances that “conflict” with the state’s constitution. Houston, San Antonio, and El Paso sued the state in 2023, arguing the law would cause harm to cities by disallowing them from creating their own ordinances without prior approval from the statehouse.
What We’re Reading
- The Center on Budget and Policy Priorities released a report with state-by-state numbers to show how much federal funding libraries, museums, and other arts and humanities nonprofits stand to lose if agencies were dismantled.
- The American Prospect examines the Oregon statehouse’s attack on Multnomah County’s Preschool for All.
- The Miami Herald Editorial Board cautioned that Floridians need look no further than Wyoming to get a sense of what eliminating (or drastically cutting) property taxes could do to the state. After passing a significant property tax cut earlier in the year, Wyoming is now facing a projected $686 million public school funding deficit by 2029-2030. The Florida Policy Institute estimated the state would need to double the sales tax rate to 12 percent to make up lost revenue if the tax were eliminated.
- The Kentucky Center for Economic Policy tallied the damage from the federal tax bill, highlighting ITEP analyses. The top 1 percent of Kentuckians will see a tax cut of about $46,000 per year—more than many live on—while over 200,000 lose insurance, rural hospitals face closure, and the state owes hundreds of millions more to fund the Supplemental Nutrition Assistance Program.
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