Anna Mudumala, research associate, Eizabeth Williams, senior policy manager and Robin Rudowitz, senior vice president at KFF Health News.
The One Big Beautiful Bill Act fundamentally changes the way the federal government supports the states relative to Medicaid funding, as analysts are looking for early signs of financial distress.
"States continue to experience slow revenue growth following pandemic-era highs," writes Anna Mudumala, research associate, Elizabeth Williams, senior policy manager and Robin Rudowitz, senior vice president at KFF Health News.
"While many states ended fiscal year 2026 with revenues above projected amounts, estimated total revenue growth was 2% compared with 5% in fiscal year 2025, and many states saw declines in revenue collections."
The quotes come from a brief issued Friday by KFF that analyzes numbers from data supplied by the National Association of Budget Officers.
According to NASBO, 20 states are experiencing revenue declines in fiscal year 2026 while 30 had revenue increases above 0% but below 10%. Nebraska led the pack with a 13% rise in revenue.
Rainy day or surplus funds remain intact, but their growth has slowed.
Every state except Vermont is required by low to maintain a balanced budget. Budget surpluses or rainy-day funds can be tapped during times of shortages and are closely monitored for weakness by credit agencies and analysts.
"By fiscal year 2026, rainy day funds remained elevated but had fallen from their pandemic-era peak, ranging from less than 10% of general fund spending in 17 states to over 30% in three states," said KFF.
Some of OBBBA's provisions will start taking effect next year including forcing states to administer work requirements. Tax revenue some states receive from providers will also be stepped down over a period of years.
KFF is projecting how the states may react to the coming budget crunch.
"States have limited options to respond to reductions in federal Medicaid spending," said KFF.
"States may try to raise additional revenues or reduce spending in other areas of the budget, though this is likely challenging given tightening state fiscal conditions."
"Instead, states may seek to restrict Medicaid provider reimbursement rates, benefits, or eligibility to reduce state Medicaid spending."
The Pew Charitable Trusts has charted out how federal funds flows out to the states, the bulk of which is Medicaid.
"In fiscal year 2026, Medicaid—which provides medical coverage for eligible children, adults, people with disabilities, and older Americans—accounted for 69.9% of total federal grants to states and was the largest source of federal funding in all but one state."
The lone exception was Wyoming where it only accounts for 24.2%
The second largest tranche was federal grants that support programs supporting needy families and school lunch programs which clocks out at 10.9%. Transportation comes in third with 7.4% of total.
Pew has also traced trends in state revenue levels farther back for a bigger picture perspective.
"Total inflation-adjusted state tax collections fell in most states for the second year in a row in fiscal 2024, with the declines largely attributed to the adoption of widespread tax cuts, in addition to waning pandemic-era factors."
