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States Have Big Decisions Looming      01/08 06:11

   States have major decisions to make in 2026 about the social safety net and 
taxes in the aftermath of a sweeping law President Donald Trump signed last 
year.

   (AP) -- States have major decisions to make in 2026 about the social safety 
net and taxes in the aftermath of a sweeping law President Donald Trump signed 
last year.

   The federal government is shifting more responsibilities to states over the 
next few years, and states must prepare for greater costs in the Medicaid 
health care and SNAP food aid programs. They also must decide whether to offset 
upcoming federal funding cuts with state tax dollars. And they must weigh 
whether to cut state taxes on tips, overtime wages and other items to remain in 
line with Trump's big bill.

   Though most states still have ample rainy day funds, the extra burdens are 
coming as many states face their tightest budgets since the early days of the 
coronavirus pandemic.

   "There's a big storm coming for state budgets -- the radar is clear -- and 
it's going to hit almost every state," said Tim Storey, CEO of the National 
Conference of State Legislatures. "It's going to mean some hard choices."

   In most states, those determinations will begin in January, when 
legislatures convene and governors lay out their agendas.

   Food aid will become a bigger expense for states

   The Supplemental Nutrition Assistance Program, which is used by 42 million 
Americans to help buy groceries, is going to become more expensive for states 
to run and harder for some people to qualify for assistance.

   Currently, the federal government picks up the full cost of benefits -- 
around $94 billion in the fiscal year that ended in September 2024 -- and 
splits the administrative costs with the states, which run the program. The 
federal share of administrative costs for 2024 was about $6 billion.

   Starting Oct. 1, states will have to pay three-fourths of the cost to run 
the program. And starting in late 2027, some states that make errors in more 
than 6% of payments -- often for paying a household more than it's supposed to 
get after its income rises -- will have to start paying some of the costs of 
benefits.

   California already has allocated $84 million to try to reduce SNAP errors, 
plus additional money to help counties implement other new requirements.

   The shift in administrative costs could come to around $50 million a year in 
Florida, said Sky Beard, the Florida director for No Kid Hungry. Paying for 
some SNAP benefits, if the state is forced to, could be in the neighborhood of 
$1 billion a year. She said that's a reason lawmakers have a lot of questions 
about the details of error rates.

   Other states are weighing whether to put more money into SNAP.

   New Jersey Assembly Speaker Craig Coughlin, a Democrat, said the state has 
an obligation to help people access health care and food. But he said the 
magnitude of federal cuts -- as much as a $36 billion reduction for New Jersey 
over the next decade for Medicaid alone, according to KFF, an organization that 
researches health policy -- could make it hard to keep all the state's social 
programs unchanged.

   "What there will be is a commitment to doing our level best to make sure 
that all of the people's needs get covered," Coughlin said.

   States could consider scaling back Medicaid

   The federal law signed by Trump imposes work requirements for some adults on 
Medicaid, the joint federal-state health insurance program for low-income 
people. Most states must start those work mandates by January 2027, which means 
they must be accounted for in their next state budgets.

   But states can start sooner if they desire.

   Nebraska Gov. Jim Pillen announced that his state will launch Medicaid work 
requirements in May. The Republican said the state could handle the change 
without hiring more government employees and that the work mandate "can have a 
gigantic impact in helping lift people up."

   But many states face tens of millions of dollars of costs merely to prepare 
for the new Medicaid requirements.

   The Missouri Department of Social Services has requested about $33 million 
in the next budget for technology improvements needed to comply with Medicaid 
work checks and more frequent eligibility reviews. It's seeking more than $12 
million to hire the equivalent of about 120 people to carry out the tasks.

   The work requirement applies to people with slightly higher incomes who are 
eligible for Medicaid under a voluntary expansion included in President Barack 
Obama's 2010 health insurance overhaul. Forty states and the District of 
Columbia took up the offer. The states that didn't agree to the expansion all 
have legislatures controlled by Republicans.

   The work requirement is the biggest piece in a series of Medicaid changes 
that the nonpartisan Congressional Budget Office forecasts will reduce Medicaid 
spending by $911 billion through 2034 and leave 10 million more Americans 
uninsured over that time frame.

   States could respond by narrowing who is eligible for Medicaid, as the 
District of Columbia did in a policy that kicked in Jan 1. Or they could follow 
Colorado and Idaho and cut Medicaid reimbursements to medical providers.

   Liz Williams, who analyzes Medicaid at KFF, said home care, dental benefits 
and coverage of GLP-1 drugs often used for weight loss, also could face 
restrictions in some states.

   Some changes are expected to hit rural hospitals especially hard. The 
federal law seeks to partly offset that by spending $50 billion over the next 
five years. States will have to decide how to use their share of that money.

   States also face decisions on tax cuts

   The federal law temporarily halts federal income taxes on tips and overtime 
pay, provides new tax deductions for seniors and some people with auto loans, 
and enacts numerous new corporate tax breaks.

   States can decide whether to incorporate those tax cuts into their own 
income tax codes.

   Some states have income tax laws that automatically conform with changes to 
federal tax laws. But officials in other states have to decide whether to link 
up -- and whether to do so partially or fully.

   Michigan is the only state so far to vote to opt in to the tax breaks on 
tips and overtime. Those provisions automatically carry over to state income 
taxes in about a half-dozen other states.

   Officials in Arizona are among those planning to conform to the federal tax 
cuts when their legislative session begins in January. Democratic Gov. Katie 
Hobbs said embracing the tax breaks can help "ease the cost of living crisis" 
and provide certainty to taxpayers. Republican legislative leaders say they 
stand ready to give their approval.