Industry News

On January 12, 2026, the National Association of State Budget Officers (NASBO) released its 2025 State Expenditure Report: Fiscal Years 2023-2025. This annual report examines spending in the various areas of state budgets including: elementary, secondary and higher education; public assistance; Medicaid; corrections; transportation; and other areas. In addition, it includes data on capital spending and revenue sources in state general funds. 

Following record growth in fiscal 2021, the 2025 report indicates that total state spending (including general funds, other state funds, bonds, and federal funds) has grown moderately for the fourth consecutive year. The more moderate growth from state funds is primarily due to: 1) weaker revenue growth over the past three years compared with the strong gains in fiscal 2021 and 2022; and 2) a decline in one-time spending from surplus revenue. In fiscal 2025, total state spending is estimated to reach $3.2 trillion. This represents an increase of 5.7%, up from 5.2% in fiscal 2024, which is almost identical to the State Expenditure Report’s 38-year average of 5.6%.

Other key findings include: 

• In estimated fiscal 2025, general fund spending represented 37.9% of total state spending, which was the same in fiscal 2024.
• In estimated fiscal 2025, federal funds decreased slightly to 33.5% from 33.6% in fiscal 2024.
• In both fiscal 2021 and fiscal 2022, federal funds comprised the largest share of total state spending mainly due to the impact of federal COVID-19 relief funds. These were the only years in the 38-year history of the State Expenditure Report that federal funds were a greater share of state expenditures than general funds.
• In fiscal 2025, the “Medicaid” program category is estimated to have the largest gain in total state spending at 8.4%, up from 5.3% in fiscal 2024. For the third consecutive year, state Medicaid funds increased faster than the federal Medicaid fund partially due to the end of enhanced federal funding from the pandemic. States have higher spending due to rate increases and greater health care needs among the remaining enrollees.

The report indicates that, “State funds in fiscal 2026 will continue to be impacted by prior surplus general fund dollars directed toward multi-year infrastructure projects, as well as funding directed toward a broad range of ongoing spending pressures. These factors combined suggest fiscal 2026 total state spending growth could be near long-term historical levels.”

The report is available here.