A state’s federal dollars can put some states in a difficult position. Cut services or raise taxes.
The July budget bill cut almost $1 trillion in federal Medicaid spending over a decade, according to the Congressional Budget Office. And in June, the Trump administration said it had frozen nearly $7 billion in the federal education fund. These funds were released a few weeks later, but there was uncertainty about whether schools could meet the needs of children across the country.
One in every $3 spent by the state in recent years comes from the federal government. Of course, the state budget is not a monolith. For example, Louisiana relies on federal funding for half its spend, but federal funding is less than a quarter of Connecticut’s budget. (The remaining state money comes from public state funds, filled primarily by state tax revenue and specialized funds, rainy day funds, bonds and other state sources.)
More than half of all federal funds to the state support Medicaid. In 2024, the state spent $914 billion on Medicaid. Of that, $588 billion, or 64%, came from the federal government. The state also spent $845 billion on higher education and higher education before K-12, with $136 billion (about 13%) coming from the federal government. While the majority of education funding comes from the state itself, the U.S. Department of Education supports K-12 schools in low-income districts, headstart kindergartens for low-income households, Pell grants for low-income students to attend college, and special education programs with disabilities.
The unique financial provisions found in all state constitutions play a role in how states are affected by reduced federal funding and how they can resolve budget shortages.
“Unlike the federal constitution, virtually every state constitution pays detailed attention to financial issues,” state and local government expert Professor Richard Brifor of Columbia Law School wrote that the scholarship focuses on the financial provisions of the state constitution. “The state’s constitution requires special steps to limit spending, mandate certain types of spending, constrain taxes and liabilities, and enact budgets.”
All states except Vermont must balance their budgets according to statutes or state constitutional provisions. Simply put, these provisions prohibit the state from spending more money than it collects in the fiscal year. “So if the state wants to make up for the loss of money,” Brifor said in an interview with State Court Report Last month, “We’re probably seeing the state see tax increases or reduction services.”
But Brifor said in an interview that “states that have a financing cap, like constitutional restrictions on tax hikes and borrow money, will find it difficult to fill the gaps left by lost federal funds.”
The 16 states need a super majority of Congress to approve all or part of tax increases. According to the National Congressional Congress Council, “These requirements determine a majority vote of three-fifths, two-thirds, or three-quarters in both chambers to raise or impose new taxes.” Also, most state constitutions limit the ability of states to borrow money to make up for budget shortfalls. The structure of these restrictions varies from state to state. Some Barr State debt is totally owed to others, and many require voters to approve new debts, the Congressional supermajority, or both.
Briffault writes that they often rely on “slippery budgeting equipment” and “financial manipulation” to avoid constitutional constraints on funding capabilities. These include selling bonds supported by a specific revenue stream rather than a state FISC, levies costs on the use of public services, shifting costs between revenue or financial periods, and more.
But clever accounting may not help states facing a gap in funding from lost federal dollars. “I’m skeptical that states can creatively avoid this kind of federal cut,” Brifor said. State Court Report. “Maybe in the first year, some states may postpone costs, but in the long run, creative workarounds will be difficult to use,” he said these budget tools “are the most successful when infrastructure is involved.” That’s because new infrastructure could be funded by the revenue it generates, he explains. The state can borrow funds to fund infrastructure projects and pledge to repay the bonds with proceeds from the project. This is a scheme that does not generally apply to spending on social services.
Loss of federal funds in regions such as Medicaid and education are likely to cut services in many states. In legal applications, many state authorities demonstrate the impact of federal dollar losses on their ability to provide critical public services, including education, healthcare, transportation and food aid. Such cuts make it difficult for states to fulfill their “constitutional obligation to effectively serve (their) residents,” an official said.
The constitutional obligations of these states to provide specific services add a layer of complexity to the issue. For example, a significant reduction in health care coverage for low-income individuals could violate certain state constitutional guarantees regarding health care. Courts in at least two states (New York and North Carolina) recognize that their constitution requires some state medical support for those in need. And every state constitution guarantees the public education system. According to the state’s board of education, more people are asking the nation to provide special education and maintain universities. Some state courts have found that education provisions require certain per person spending, breaking school funding schemes that have created inter-district inequality, and establishing a difficult obligation to meet low-income school districts without providing federal funding.
“It appears there is a structural gap between what the people want from the government and what they are willing to pay for. Federal cuts that narrow the state’s budget over the next few years could underline that gap.
Kathrina Szymborski Wolfkot is the administrative editor of the state courts’ reports and a senior advisor to the Judicial Program at the Brennan Center for Justice.
Dylan Erickson is a student at NYU Law School. He previously attended the Brennan Centre Public Policy Advocacy Clinic.
Suggested Quote: Kathrina Szymborski Wolfkot & Dylan Erikson, Federal funding cuts undermine state constitutional obligationssᴛᴀᴛᴇcᴏᴜʀᴛrᴇᴘᴏʀᴛ (Sep. 09, 2025), https://statecourtreport.org/our-work/analysis-opinion/federal-funding-cuts-constitution–constitution-
