The combination of federal funding changes and increasing longevity are having an accelerating effect on state budgets.

"Although the share of the population age 65 or older has been increasing for at least a century, the pace of growth has surged over the past 15 years."

The quote comes from a study by The Pew Foundation that charts demographic conditions and how they are changing the state budgetary process.

States are generally required by law to maintain balanced budgets and typically rely on municipal bonds to fund capital improvement projects.

Pew's numbers show that the share of the population age 65 and older rose from 12.4% in 2004 to 18% in 2024, and more than 20% of the population is projected to be older than 65 by 2030.

Pew posits the financial effects of an older population as revenue loss based on tax collection, higher health expenditures tied to increasing Medicaid costs, and rising demand for state services that support seniors.

States are also required to prepare a State Plan on Aging every two to four years to receive federal funding through agencies nested in the Department of Health and Human Services.

Fourteen states have gone beyond the basics by developing 10-year multi-sector strategic plans for dealing with aging.

"Understanding how an aging population affects revenue and spending and creating strategies now to address those challenges will help states create more sustainable budgets," said Pew.

The National Association of State Budget Officers is also tracking trends affecting public finance. As of July 1, 45 states have enacted a full-year budget for fiscal 2027.

According to NASBO, "proposed budgets for fiscal 2027 call for general fund spending to increase 0.6% on a median basis compared to estimated fiscal 2026 levels.

"General fund revenue in fiscal 2027 is projected to grow 2.5% above current estimates for fiscal 2026, marking the fifth consecutive year of modest revenue growth."

Despite the overall upticks, closing budget gaps were a legislative flashpoint for some states earlier in the year.

Maryland had to solve a $1.5 billion shortage through a combination of targeted spending cuts, fund transfers, and fees.

Colorado overcame a billion dollar gap by closing corporate tax loopholes, tapping reserve funds.

Both states blamed the shortage on Trump administration policies on shrinking the federal job force and the effects of the One Big Beautiful Bill Act.

OBBA also led to at least 30 states and the District of Columbia decoupling their tax policy from certain provisions of the legislation.

In April, S&P Global Ratings weighed in on state budgetary situations by raising concerns over "the emergence of new macroeconomic and geopolitical risks," and the "recent trend of states enacting tax reductions."

The report contained no new rating actions and skewed bullish.

"State balance sheets remain sound, with rainy-day funds largely preserved at all-time highs for most states, providing short-term options to navigate potential slowing revenue growth and further shifts in federal funding priorities."