President Donald Trump Friday outlined a fiscal 2026 budget proposal that ends federal housing construction funds to states and local governments, cuts K-12 education funding and increases charter school investment.
The
"At this critical moment, we need a historic budget — one that ends the funding of our decline, puts Americans first, and delivers unprecedented support to our military and homeland security," said Russ Vought, the director of the Office of Management and Budget, in a statement, Friday.
The so-called "skinny budget" is the Trump administration's opening bid for fiscal 2026 that begins on Oct. 1. It will be followed by a more detailed budget later this month. S&P muni analysts said they're tracking the spending moves and their sector views for 2025 have already "largely incorporated federal policy risks, which included changes to federal funding."
The Department of Housing and Urban Development's budget would be slashed 44% to $43.5 billion from $77 billion in fiscal 2025. That includes a $26.7 billion cut to federal rental assistance, which would be overhauled into state-based formula grants that "would allow states to design their own rental assistance programs based on their unique needs and preferences," the budget said.
"In combination with efforts related to opening up federal lands, this model would incentivize states and the private sector to provide affordable housing," the proposal states.
The popular $3.3 billion Community Development Block Grant program, which provides formula grants to more than 1,200 state and local governments for economic development, would be eliminated. The funding is "poorly targeted" and would be "better funded and administered at the state and local level," the administration said.
A $1.3 billion program that provides grants to state and local governments to build housing, the The HOME Investment Partnerships Program, would also be killed.
"Cuts to CDBG and other HUD grants could negatively impact our public housing authority issuers if funding is not replaced by offsets," S&P analysts said in an email. "Also, the proposed cuts and reorganization of Section 8 funding, if not replaced by state or other funding sources, could negatively pressure our PHA issuers and our rated stand-alone Section 8 properties," they said. "We will closely monitor these proposals as they move through the budgeting process."
On the K-12 side, the budget continues the administration's effort to
"Federal control has replaced local decision-making, creating a one-size-fits-all system that is decimating student achievement," the budget said.
The number of "high-quality charter schools" that "have a proven track record of improving students' academic achievement" would be expanded with an additional $60 million to bring total investment to $500 million.
S&P noted that public K-12 schools receive the majority of their revenues from state and local funds.
"If federal funding to K-12 schools decreases, we expect that each state will determine its response to the shifts since they operate their own departments of education and determine how schools are funded," analysts said. "If there are significant federal aid cuts, liquidity — particularly for those schools or districts more dependent on federal dollars — would become increasingly important as they work to put their budgets back in balance."
The budget cancels more than $15 billion in infrastructure in grants in the Infrastructure Investment and Jobs Act, including $5.7 billion for the
The Internal Revenue Service would take a 20% cut under the spending plan, which suggested the agency cut back enforcement.
The Department of Transportation would see increased investment next year — $26.7 billion, up from $25.2 billion in fiscal 2025. That includes $550 million for the Port Infrastructure Development program.
