5 State Fiscal Debates to Watch

As legislative sessions begin in statehouses throughout the country, lawmakers face a host of policy questions that will affect state budgets. The Pew Charitable Trusts’ annual Debates to Watch series previews five of the most pressing fiscal issues each year. Here’s what state leaders are likely to take on in 2025.

Debate #1: Tightening budget conditions

State lawmakers are bracing for a challenging 2025 as federal pandemic aid runs out and budget shortfalls emerge nationwide. Even states with historically strong finances, such as Maine and Colorado, are grappling with deficits, while Florida and others anticipate significant fiscal challenges in the coming years. Funding for critical priorities—including education, Medicaid, and local government aid—hang in the balance.

Debate #2: Transportation funding and electric vehicles

State transportation funds are dwindling with some experiencing immediate deficits and others facing long-term funding gaps in the years ahead. Better fuel efficiency has been chipping away at gas tax revenue for years, and rising electric vehicle ownership is speeding up that process. Stopgap measures are falling short, and policymakers are exploring more transformative solutions that could shape the future of transportation funding.

Debate #3: Harnessing artificial intelligence

As more states experiment with and deploy generative artificial intelligence tools to improve operations, the benefits and risks of this transformative technology are becoming clearer. Delivering on AI’s promise of lasting efficiency and cost savings will depend on whether state leaders can ensure thoughtful planning and reliable data—all while building trust among employees and the public.

Debate #4: Public school funding

Issues surrounding funding for K-12 education are reaching a boiling point in 2025 as states contend with expiring federal funds, declining tax revenues, and increasing spending needs for students—all against a backdrop of declining enrollment. As schools face fiscal pressures on both sides of the ledger, lawmakers are reevaluating funding formulas and access to nonpublic school options.

Debate #5: Housing affordability

As the housing shortage and rising prices continue to pressure affordability, state policymakers are intensifying their efforts to increase supply and curb costs. From streamlining permitting to revisiting restrictive zoning laws and building codes, lawmakers are reaching across political divides to embrace holistic reforms that lower barriers and encourage development.