State legislatures are facing a growing fiscal squeeze: federal changes to the Supplemental Nutrition Assistance Program (SNAP) and Medicaid are shifting costs to states just as families are struggling with rising expenses and greater need for assistance. At the same time, states must continue to fund health, human services, child care, education, and public transportation infrastructure that families rely on. To sustain investments in evidence-based policies and programs that support children, families, and communities, state leaders must find new sources of revenue or risk facing difficult choices about cutting programs when families can least afford to lose them.
Policy Drivers of State Budget Crises
In 2025, Congress passed H.R. 1, and with it enacted the deepest cuts to safety net programs in American history. Many of these changes are shifting significant costs to states. Major changes to Medicaid eligibility and administration will require states to update systems, hire more personnel, and undertake other administrative efforts to implement new eligibility requirements. At the same time, changes to how SNAP is funded will leave states with new financial responsibilities starting in 2027, ranging from tens to hundreds of millions of dollars annually.
On top of these new fiscal pressures, states have also approached the end of a period of significant federal investment and flexibility. During the COVID-19 pandemic, states received substantial federal relief through the American Rescue Plan Act (ARPA),providing resources and flexibility to respond to increased economic hardship and instability. This created an opportunity for states to expand and strengthen existing programs, as well as make meaningful, longer-term investments in programs that could continue supporting families after federal relief ended. For example, several states — including Pennsylvania and Minnesota — advanced evidence-based policies that benefit children and families in the short- and long-term, including refundable tax credits (like the Child Tax Credit and Earned Income Tax Credit), investments in high-quality child care, and increased access to affordable housing.
Research shows these policies support health. Families who receive the Earned Income Tax Credit are better able to afford basic needs like food, housing, and health care, which supports the mental and physical health of everyone in the household and buffers them from financial hardships and crises. High-quality, accessible child care supports children’s growth and development, including language, communication, social, and emotional skills, while providing a safe and healthy environment for children. Each of these important supports reduces the likelihood that families will experience material hardships.
We commend state legislatures for investing in programs and policies that improve child and family health. However, unlike the federal government, nearly all states face balanced-budget requirements. This will make it especially challenging to sustain and build upon those investments as pandemic-era federal resources wind down and new federal policies shift additional costs to states. States will need to consider how to raise and dedicate sufficient revenue to meet these new fiscal demands while preserving the strong,evidence-based programs families rely on.
In the face of these pressures, states may feel incentivized to reduce program costs quickly by limiting program eligibility or adding administrative barriers that make it harder for families to enroll and remain connected to assistance. But reducing access to programs that support children and families can impose additional costs on both states and families. Our research shows families who lose their SNAP benefits have higher rates of food insecurity and poorer health, and that families who are uninsured are more likely to forego needed care or make sacrifices in other areas of their household budgets, such as paying for rent or food, in order to pay for health care costs. Similarly, families without child care assistance are more likely to experience child care constraints, which is linked to worse mental and physical health, risk of developmental delays for children, and food insecurity. When families lose access to essential supports, children’s health and well-being is harmed.
These consequences can also carry costs for states. When families lose access to preventive supports, worsening health, housing instability, food insecurity, and other forms of hardship can increase demand for more costly public services and strain state and local systems. States therefore face an important fiscal and moral choice. Raising sufficient revenue to sustain effective policies and programs can help protect families from hardship and impossible tradeoffs among basic needs, while simultaneously reducing pressure on emergency health care, unhoused response services, crisis intervention, and other public systems.
Policy Recommendations
Opportunities exist to raise state revenue without placing additional burdens on families. In the four states Children’s HealthWatch conducts research, these include:
Massachusetts: Massachusetts could pursue additional progressive revenue by closing corporate tax loopholes and requiring multinational corporations to pay taxes on profits shifted offshore.
Minnesota: Minnesota considered a tax on large social media companies that collect and monetize Minnesotans’ consumer data.
Pennsylvania: Pennsylvania lawmakers have proposed a Fair Share Tax Plan, which would raise more than $2.6 billion in new revenues in the first year while cutting taxes for about 60% of Pennsylvania families
Arkansas: Arkansas has reduced their income taxes four times since 2023, which has resulted in $1.5 billion in lost revenue. Reversing these cuts and preventing any trigger laws from passing will protect against budget deficits.
At Children’s HealthWatch, we are concerned that states may respond to new fiscal challenges by cutting programs that children and families depend on. But states have options: they can raise sufficient revenue, preserve evidence-based programs, and sustain the investments that help families afford food, housing, health care, and child care. At the same time, we recognize that strong state policy cannot substitute for a strong federal commitment to children and families. Children’s HealthWatch remains committed to reversing federal cuts to SNAP, Medicaid, and other essential supports and strengthening federal investment in the systems and programs that give children and families the foundation they need to thrive.
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