NASBO

Total balances are expected to decline in FY2025 and FY2026 as states spend down prior-year surpluses that built up in general fund ending balances. This aligns with routine budget practices, with many directing the funds to one-time investments.

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Most states plan to maintain or add to their rainy day funds in FY2025 and FY2026, though the median balance as a % of general fund spending ticked down in FY2025 as spending is on track to increase faster than reserves for that year.

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Personal income taxes, the largest source of general fund revenue for most states, are expected to see faster growth in FY2025 and FY2026 compared to other major sources.

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When governors recommended their budgets, most states were forecasting positive general fund revenue growth of less than 5% in FY2026, with annual growth of 3.0 percent in the aggregate.

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On a nominal basis, forecasted general fund revenues in FY 2026 are up 44 percent compared to their levels in FY 2019, despite slower revenue growth in recent years.

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