Budgets for fiscal year 2025 go into effect on July 1 in most states. While some states have already adopted budgets for the new fiscal year, the debate continues in others. It is important to understand that state governments may not operate with a budgetary deficit; they are required by law to have balanced budgets that align available revenues and expenditures.

To ensure a balanced budget, governors and legislators have, or will have to, reduce expenditures for government services, or look for additional sources of revenue, such as tax and fee increases. Minor budgetary shortfalls or deficits are usually easily addressed without major adjustments. States with more significant deficits, such as California’s estimated deficit between $38 and $45 billion, will require more effort to ensure balance is achieved. It’s often said, “commercial real estate doesn’t vote,” so the concern is that states with minor or significant deficits will focus on the commercial real estate industry as a source of additional revenue as the most politically acceptable way of addressing budget shortfalls.

For additional information on proposed and enacted state budgets, visit the National Association of State Budget Officers website.