There are 16 U.S. states without an enacted fiscal 2026 budget as of June 24, 2025. Of the 16 states, seven have budgets that are awaiting governors' signatures, and the remaining nine are in various stages of ongoing legislative negotiations. Some states regularly pass their budgets close to the June 30 deadline and typically adopt measures that provide more time to finalize their budgets. We note that 16 states already enacted biennial budgets in 2024 and, therefore, did not have to enact a fiscal 2026 budget during the 2025 legislative session.

S&P Global Ratings continues to monitor the evolving impact that tariff policy, geopolitical tensions, and federal monetary policy are having on states' economic growth. The potential for late budget adoption could persist as some states consider softer economic and revenue forecasts, in some cases due to policy changes such as tax-rate reductions, in others due to macroeconomic factors. In general, states are, for the most part, approaching the end of the current fiscal year from a stable financial position, with historically high reserves and liquidity to manage potential economic headwinds. This supports our view that for most U.S. states, late budget adoption will be rooted primarily in legislative and executive fiscal policy differences, rather than in risks of structural budget imbalance. Some states have a pattern of last-minute negotiations and routinely adopt measures that provide more time to finalize their budgets. Even after budgets are adopted, we regularly see states adjusting to evolving revenue or policy environments through gubernatorially allowed changes, legislative action from sitting assemblies, or special sessions called within the current fiscal year.

Budget Priorities And Negotiations Are Similar To Those In Previous Years

States' budgetary priorities have remained consistent, focused on areas such as enhancing education funding for grades kindergarten-12 (K-12), spending and policy changes for Medicaid, and tax policy changes. In Illinois, for example, new taxes have been extended on gasoline, gambling, and vaping, among other items. Iowa is about to conclude its first full fiscal year under a 3.8% flat personal income tax rate, with no tax brackets for the first time in decades. The debate on education funding continues, stemming from factors including reduced local funding sources, desired pay increases for teachers and staff, and an increase in general maintenance costs over the past five years.

Federal Medicaid policy and funding uncertainty looms and threatens to disrupt fiscal progress and complicate U.S. states' financial forecasting in the fiscal 2026 budget cycle. Possible federal actions as part of the budget reconciliation process could shift as much as $880 billion of Medicaid and Children's Health Insurance Program costs to states over the next 10 years, costs that we believe would be difficult for any state to absorb without material changes in spending or program eligibility. Medicaid is the largest expenditure (inclusive of state and federal funding) in states' budgets. Although the magnitude and implementation period of potential federal changes are critical to states' ability to make budget adjustments, we believe states generally possess good autonomy to implement changes to their Medicaid programs, which could help them manage a shift in expenditures. (For additional information, see "U.S. States Brace For Potential Medicaid Funding Gaps," March 20, 2025.)

Down To The Wire

As the June 30 deadline approaches, most states without a fiscal 2026 budget are addressing tax and spending policy differences during budget negotiations, rather than grappling with structural budget shortfalls. California is an exception, as was the case in fiscal 2025. Some states also face political control split between the legislature and governor, which could extend negotiations to reach a bipartisan agreement beyond June 30 before a final bill is passed.

Protections For Debt Payment Are Key In Late Budget Negotiations

As several states fine-tune their budgets, we believe most maintain significant leeway over their cash flow that allows them to temporarily fund operations and debt service if a budget is not enacted by the start of the fiscal year. If budget negotiations extend beyond the year-end deadline, many states have procedures in place, including continuing resolutions or appropriations, piecemeal budgeting, or authorizing provisions in statute, that allow the treasurer to prioritize debt service payments in the absence of a budget.

Uncertainty about a state's legal authority to pay debt service emphasizes how budget negotiations that go past the end of a fiscal year could hamper credit quality. Should a state's budget not be enacted by the end of the fiscal year, exposure to a missed or nonpayment event increases if a state lacks measures to mitigate potential disruptions in governmental operations (for example, government shutdowns).

States That Have A Fiscal Year Not Ended June 30

• Alabama (AA/Stable): Sept. 30
• Michigan (AA/Stable): Sept. 30
• New York (AA+/Stable): March 31
• Texas (AAA/Stable): Aug. 31

States Awaiting Action By The Governor

California (AA-/Stable)

The California legislature passed an almost $325 billion fiscal 2026 budget (with a $229 billion general fund) on June 13, 2025. The governor is expected to sign the budget bill before the start of the new fiscal year. The budget continues a trend of improving structural balance, although the state forecasts that future budget gaps will be larger.

Connecticut (AA-/Stable)

The Connecticut general assembly passed a biennial budget for fiscal years 2026 and 2027 in early June. The budget appropriates $24.1 billion in total general fund spending in fiscal 2026 and $25.5 billion in fiscal 2027. The governor has said he will sign the bill into law once received. In Connecticut, funds for debt service are deemed to be appropriated, and as part of the contract between bondholders and Connecticut, the state must appropriate all amounts necessary for the punctual payment of principal and interest.

Florida (AAA/Stable)

Florida's house of representative sent the fiscal 2026 budget to the governor for approval after extending its session to June 30, 2025, to resolve policy differences with the senate on the fiscal 2026 budget bills and tax package. The $4.4 billion difference between the house (approximately $113 billion) and senate ($117.4 billion) proposed fiscal 2026 budgets was the largest difference between the chambers in the past decade. A conference committee has worked on proposals related to K-12 education, transportation, criminal and civil justice, and state employee pay raises. Florida has a history of passing operating budgets by the start of its fiscal year on July 1, which we expect will continue. However, in the absence of a budget, the state could experience a partial government shutdown, stopping certain nonessential operations. At the same time, bond resolutions provide for the flow of funds of the dedicated taxes to pay debt service, and Florida's statutes require the state board of administration to advise the governor and the legislature of any projected need to appropriate funds to honor the state's full faith and credit pledge.

Louisiana (AA/Stable)

Louisiana's legislature approved the fiscal 2026 budget on the final day of the regular legislative session, and it will now go to the governor, who may sign or veto the entire budget, or veto specific line items. Louisiana has an established record of timely budget adoption, even during periods of economic and budgetary stress, and we expect that trend will continue. If a budget is not adopted by the beginning of the fiscal year, resources collected and held in the bond security and redemption fund would still be available to support debt service on the state's general obligation bonds.

Missouri (AAA/Stable)

For fiscal 2026, the Missouri General Assembly passed a $53 billion budget, which was sent to the governor and awaits his signature. The budget includes fully funding K-12 education, with $500 million in new funding to support the K-12 public school foundation formula. It also includes a core 3% increase across all higher education spending and a raise for all state workers based on tenure. Although we anticipate on-time budget passage, we expect the state would enact a continuing resolution in the event of late budget adoption, to maintain spending at the previous year's funding level and debt payments as a first-priority budget item.

New Hampshire (AA+/Stable)

New Hampshire's legislature convened a conference committee to resolve policy and spending differences between the house of representatives' ($15.5 billion) and senate's ($15.9 billion) versions of the fiscal 2026-2027 state biennial operating budget and trailer bill. Key policy differences focus on Medicaid and health program adjustments, local public education and special education funding, and higher education funding.

The state has some history of late budgets, although we do not view the absence of a timely budget as an immediate credit risk, as New Hampshire can approve a continuing resolution for state agencies to operate at the preceding year's funding levels. In addition, a continuing resolution does not impair the state treasurer's ongoing authority to pay full debt service obligations, which, in our view, mitigates timing risks associated with late budget adoption and enables the state to pay debt out of funds not otherwise appropriated, pursuant to statute.

Rhode Island (AA/Stable)

The state's $14.3 billion fiscal 2026 budget awaits the governor's signature after receiving approval from the house and the senate. Rhode Island has a statutory balanced budget requirement, and a continuing appropriation provision that allow the state to fund operations and appropriate for debt service in the event of late budget adoption after June 30. The fiscal 2026 budget prioritizes investments in education, economic development, transportation, homelessness, and health and wellness, among others. The state estimates a reserve balance in its budget reserve and cash stabilization reserve in fiscal 2025 (ending June 30) of $288.5 million, or 5.2% of estimated general revenue, a level we consider good, and we expect the state will maintain its reserve balance above the statutory requirement of 5% of estimated general revenue in fiscal 2026.

States In The Budget Development Process

Arizona (AA/Positive)

The Arizona legislature continues to deliberate the details of the $17.7 billion fiscal 2026 budget, including a 7% increase in spending compared with revised 2025 levels. The proposed budget was structurally balanced with the budget stabilization funds projected to have a balance of $1.6 billion. The state's constitution requires the budget to be enacted before the end of its fiscal year to avoid a state government shutdown.

Delaware (AAA/Stable)

On Jan. 6, 2025, outgoing Delaware Governor John Carney proposed a budget for fiscal 2026. On March 27, Governor Matthew Meyer introduced amendments, called a budget reset, reflecting his priorities in education, affordable housing, and health care, and preserving some of the previous governor's proposals, including teacher and state employee compensation increases, while also introducing new revenue proposals and focusing on efforts to increase efficiency and transparency. Governor Meyer's budget also recommended the creation of a federal contingency fund of $21.9 million to offset potential federal funding cuts. The joint finance committee finalized the proposal in the first week of June, setting the stage for a $6.1 billion operating budget. The committee stayed within budget growth targets and preserved reserves, maintaining the rainy day fund at $365.4 million and the budget stabilization fund at $469.2 million. No increases to income taxes were included. The final budget proposal is now with the state's full general assembly for consideration.

Massachusetts (AA+/Stable)

The commonwealth's proposed executive fiscal 2026 budget provides for approximately $59.6 billion in authorized spending, which is about 2.6% higher than revised fiscal 2025 spending, excluding spending of income surtax revenue and projected transfers to the medical assistance trust fund, and makes key investments in education and transportation. The Massachusetts joint conference committee is deliberating the final version of the fiscal 2026 budget, which the governor will have 10 days to either approve, veto, or attempt to modify. However, historically, the governor has filed an interim budget to keep state government running, if the state should not enact a budget by July 1, the start of the fiscal year. If necessary, Massachusetts can extend the interim budget month by month, as it has done previously.

North Carolina (AAA/Stable)

As the North Carolina general assembly continues to deliberate on the biennial budget for fiscal years 2026 and 2027, lower revenue estimates might further delay the enactment of the biennial budget. If that does occur, we expect the state, like it has in the past, will take actions, including continuing resolutions, to ensure continued operations in the absence of an enacted spending bill. In addition, depending on the timing and certainty of potential federal funding cuts, it could further delay budget enactment or result in budget adjustments after being enacted. The state has a history of prudent fiscal management, which includes making difficult budget decisions to restore fiscal balance, when necessary, as well as managing surpluses when they occur, to retain structural budget balance.

Ohio (AAA/Stable)

Ohio's house and senate have each passed their versions of the state's biennial budget. It now heads to a conference committee to negotiate the final version, which must be passed by both chambers and will then head to the governor, where he may approve or veto specific line items within the budget. Ohio's constitution requires the general assembly to provide sufficient revenue to pay principal and interest as they become due, and revenue is committed to debt service without the need for an appropriation.

Oregon (AA+/Stable)

Legislative budget negotiations continue on Oregon's 2025-2027 biennium budget in the session scheduled to adjourn June 29, 2025. Should deliberations extend past June 2025, we understand the house and senate passed a continuing resolution bill that is awaiting signature and maintains current level funding through Sept. 15, 2026, in the new biennium budget, including authorizing payments for debt service payments on outstanding obligations. The state's May 2025 revenue forecast decreased projected 2025-2027 biennium general fund revenue by $334 million compared with its March 2025 forecast, driven by uncertainty due to shifting trade and tariff policies and weaker assumed personal income tax collections. Oregon's gross state product includes key exports in semiconductor machinery and transportation equipment; the state's trade connections with Canada, China, and Mexico represented about 45% of total exports in 2024. The $1.6 billion forecast personal kicker surplus for fiscal 2025, as of May 2025, is slightly lower than $1.7 billion previously estimated in March. 

Pennsylvania (A+/Positive)

The Pennsylvania governor's proposed fiscal 2026 general fund budget of $51.5 billion is a 7.5% increase over the adopted fiscal 2025 budget and includes a $1.6 billion draw from the budget stabilization reserve, as well as using prior-year general fund surplus. The proposal continues to address credit pressures including educational funding adequacy spending, statewide regional transit operator support, and fully funding the pension payments. The revenue estimate for this proposal was finalized in January, but a May forecast weakened general fund growth to 2% compared with fiscal 2025. The past two budgets have been completed after the start of the fiscal year, and we are watching progress on this budget as well.

Wisconsin (AA+/Stable)

The Wisconsin governor proposed a $53.8 billion general fund 2026 and 2027 biennial budget in February and the legislature has been working toward a bipartisan bill. Since the budget proposal was submitted, the revenue estimates have been lowered by $335 million over the biennium. In early June, an impasse was declared in the negotiations. Although hopeful for a budget prior to the fiscal 2025 year-end on June 30, if no new budget is passed, the state would continue to operate at fiscal 2025 adopted levels.