Market Snapshot: State Budget Outlook

Market Snapshot: State Budget Outlook

Weekly market intelligence for AE and environmental industry leaders.

July 1 marks the start of a new fiscal year in 46 states, and state governments are grappling with their toughest budget climate in years. As lawmakers work to balance their books, AE and environmental consulting firms that depend on public-sector spending could feel the effects.

States are facing mounting fiscal challenges as inflation erodes purchasing power, population growth increases demand for public services, and federal funding cuts and economic uncertainty threaten to take a bite out of revenue. In Washington State, for example, the Office of Financial Management warned state agencies that, in addition to “significant” operating and transportation budget shortfalls, the capital budget “will also face challenges during the 2027-2029 biennium, and agencies must carefully calibrate requests for both reappropriations and new appropriations to align with their top priorities.”

According to the Fiscal Survey of the States, published by the National Association of State Budget Officers (NASBO), governors in 22 states proposed targeted spending cuts in their Fiscal Year 2027 budgets. Overall, Fiscal Year 2027 budgets proposed by governors call for a median 0.6% increase in general fund spending over Fiscal Year 2026. 

According to a report by Stateline last week, “NASBO expects more modest growth for state revenues in the coming years with a slower national economy, the impact of state tax cuts, and changes in federal tax policy.” The Fiscal Survey of the States did contain some good news, however, for state coffers. Twenty-nine states reported Fiscal Year 2026 revenues were exceeding original estimates at the time of data collection, and only 11 states reported collections running below original forecasts. 

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