The NGA Public Health and Disaster Response Task Force, co-chaired by Hawai`i Governor Josh Green and Vermont Governor Phil Scott, held a briefing for Congressional staff on May 19, 2025 to outline the state and territory budget process and the fiscal impact of federal policies on state budgets. Shelby Kerns, Executive Director of the National Association of State Budget Officers (NASBO), led a panel discussion with:
- Maddison Farris, Federal Affairs Manager, Office of Oklahoma Governor Kevin Stitt;
- Annie McColaugh, Director of Federal Affairs, Office of Oregon Governor Tina Kotek;
- Matt Cowles, Deputy Director, National Emergency Management Association (NEMA);
- Lexie Kuznick, Director of Policy and Government Relations, American Public Human Services Association (APHSA); and
- Jack Rollins, Director of Federal Policy, National Association of Medicaid Directors (NAMD).
State Budget Principles, Conditions and Challenges
To open the discussion, NASBO’s Shelby Kerns provided an overview of how state budgets operate, emphasizing the key differences between state and federal budgeting. She highlighted that states are highly diverse in their fiscal structures, with varying budget cycles, timelines, and revenue sources. K-12 education and Medicaid are generally the two largest state budget items, the latter of which continues to grow and exert significant pressure on state budgets. States get about one-third of their revenues from federal funds, making federal policy shifts especially impactful. Unlike the federal government, states must generally balance their budgets and do not borrow for operating expenses, meaning they need long lead times in responding to federal changes.
Kerns expressed concern over proposed federal cost shifts, particularly in Medicaid and SNAP, which could force states to absorb an additional $111 billion annually, an amount equivalent to what states currently spend on higher education, corrections, and transportation combined. With general fund revenues flattening and costs rising due to medical inflation, education demands, disasters, and housing affordability, states are facing tightening fiscal conditions. Though many have healthy rainy-day funds, these are one-time resources and cannot cover ongoing cost increases. States may have to respond with a mix of tax increases, spending cuts, or program reductions—difficult trade-offs in an already challenging budget landscape.
“I’ll just reiterate a couple points: First, states have to balance their budgets. Budgets are already tightening. At least 18 Governors have proposed targeted cuts for the coming fiscal year. States need time to react and respond. In addition to updating systems for work requirements, they’ll need to design program cuts and enact revenue increases, and/or eliminate or scale back other one time services. Rainy day funds are not a solution to ongoing cost shifts. And please don’t lose sight of the fact that these costs are cumulative.”
Shelby Kerns
Emergency Management and State Budgets
NEMA’s Matt Cowles emphasized that emergency management extends far beyond FEMA and disaster response. While FEMA is a vital partner, it is just one component of a much broader emergency management ecosystem that spans preparedness, mitigation, response, and recovery. States and localities handle the vast majority of emergencies – over 29,000 incidents last year – requiring FEMA support for only 68 federally declared disasters. Cowles underscored that capabilities vary widely across states, making one-size-fits-all federal policies impractical. States with higher disaster frequency generally have greater funding and capabilities while smaller states or those with infrequent disasters face higher cost burdens with fewer resources.
Additionally, states are already investing in their own disaster assistance programs, with over half maintaining independent recovery efforts. Cowles warned against narratives suggesting states are not doing their part and stressed the importance of maintaining a federal-state-local partnership, especially for complex and large-scale resources where economies of scale make federal involvement critical. As changes loom for FEMA and national emergency policy, Cowles highlighted the Emergency Management Assistance Compact (EMAC) as a proven, flexible model for state collaboration and called for thoughtful transitions that account for each state’s unique capabilities.
“One of the biggest things we need to remember is that every state in this country is going to need some sort of off-ramp from where we are to where we’re headed. We’re happy to work with federal partners and make some of these changes with them, but it will take time, and it is going to have to be based on the various capabilities across the country.”
Matt Cowles
Human Services and State Budgets
Lexie Kuznick (APHSA) gave an overview on the complexity and importance of funding streams that support human services programs serving low-income and vulnerable individuals and families – with the main takeaway being that flexible funding and allowing for strategic, preventive investments will generate better outcomes and greater cost-efficiency over time. Kuznick explained that state human services agencies rely on a wide mix of federal and state funding such as entitlement programs, block grants, and multiple layered sources within single program areas like child welfare. The ability to blend and braid these funds is essential for delivering person- and family-centered services.
But the most flexible funding streams, such as TANF and Social Services Block Grants, are often the ones most vulnerable to cuts and scrutiny, despite their role in preventing deeper systemic involvement. Kuznick stressed that while human services were once seen as only addressing short-term needs, the field now recognizes that upstream, preventive investments in communities improve long-term outcomes and reduce costs across health, child welfare, and other systems. However, shrinking budgets often force states to prioritize mandated services over prevention.
“The most expensive time to serve somebody in the child welfare system is when they’ve been removed from their families and are entering foster care or even hungry care. So, to the extent that we can continue to preserve the ability for states to invest in communities and whole families, ultimately, it will produce a return on investment and better outcomes.”
Lexie Kuznick
Medicaid and State Budgets
Jack Rollins (NAMD) provided a comprehensive overview of the interplay between federal decisions and state-level healthcare policy. Although Medicaid is governed by broad federal rules, he explained, it is tailored by states to fit local needs, making it highly variable across the country. Medicaid plays a crucial role in covering low-income populations, serving as the largest payer for mental health, substance use disorder services, and long-term care. Rollins discussed the significant impact of federal funding through grants, block grants, and matching funds on states’ ability to provide services and regulate insurance markets.
He emphasized that states’ Medicaid budgets are driven by three main factors: who is eligible and enrolled, what services are needed, and what providers are paid. These budgets are heavily influenced by federal matching rates, which vary based on state income levels and policy choices, with territories treated differently under capped funding models. Rollins noted that Medicaid is often one of the largest expenditures in state budgets, creating pressure to manage cost growth and sustainability, especially in the wake of pandemic-related federal funding shifts and forecasting challenges. He concluded by stressing that while federal policy sets the framework, the ultimate shape and sustainability of state Medicaid programs result from complex negotiations among governors, legislatures, and agencies, meaning that substantial changes to the program will take significant time to implement.
“I’ll just emphasize again those three fundamental cost drivers of Medicaid: Who’s covered? What’s covered? What’s the reimbursement rate? If we’re thinking about an environment where federal commitments to Medicaid are changing or shifting…it could be every state is going to react differently and have different ways of going about making those decisions.“
Jack Rollins
State Perspectives
Giving the state perspective on emergency management and human services, Maddison Farris emphasized the critical role of emergency response systems in Oklahoma, as well as the need for a more efficient federal response process. She highlighted how frequent and varied natural disasters strain Oklahoma’s emergency resources, which are heavily federally funded. While grateful for FEMA’s support, Farris pointed out inefficiencies in federally led disaster responses, including delayed demobilization, leading to high costs and logistical burdens. Farris advocated for more state-led control in managing disasters, especially since local leaders are best positioned to understand and respond to community needs.
“Disaster and emergency response resources are absolutely essential to states. When disasters hit, we rely strongly on our federal partners to help communities recover, but the current system is simply not keeping up with the scale or the speed of what’s necessary.”
Maddison Farris
Oregon’s Annie McColaugh conveyed concerns about federal instability and policy shifts that threaten the fiscal health of states. McColaugh noted recent funding pauses, sudden grant changes, and increasing expectations to take over federal responsibilities without corresponding support. She noted proposed cuts to Medicaid and SNAP could increase poverty and homelessness, strain rural hospitals, and disrupt access to healthcare and food security. McColaugh concluded by urging for a collaborative federal-state relationship and emphasized that effective governance relies on true partnership.
“Cooperative federalism works best when states and the federal government are partners, rowing in the same direction, and we stand ready to be a resource.”
Annie McColaugh
This was a common theme, with speakers emphasizing that governance is “a team sport” that requires cooperation between all the levels of government to be successful. Many programs are deeply interconnected, and a reduction in one area is likely to generate a ripple effect across all programs – ultimately leading to higher costs and worse outcomes. Speakers stressed that states and territories have many ideas about ways to streamline programs and improve efficiency, and they are willing partners in developing and sharing best practices.
