As we enter the 2023 state legislative sessions, state finances are in a historically healthy position. A thriving economy allowed many states to realize tax revenue that exceeded their initial annual budget projections, while robust relief from the American Rescue Plan continued to help states recover from losses they experienced early in the pandemic. Each of the last two years, state general fund revenue has grown at a healthy pace of about 15% on average across all states. Meanwhile, nearly every state reported that its general fund revenue exceeded its budget forecasts for fiscal year 2022, according to the National Association of State Budget Officers. As legislative sessions reconvene across the country, state legislators will be looking closely at how to use their surplus revenue.

Budget surpluses offer states a unique opportunity to invest in programs and services for kids and correct years of underfunding. Recent influxes of funding from the American Rescue Plan have been vital to keeping communities afloat during the pandemic, although those funds will run out in the coming years. However, instead of making productive investments in the future, many states are now considering regressive tax cuts. If passed, states will lose out on valuable revenue and will threaten to wipe out the progress they have made for children and families. Looking ahead to legislative sessions this year, the Institute on Taxation and Economic Policy warns that a number of states are considering slashing a host of progressive taxes, including 24 states proposing cutting personal income taxes, five states considering fully eliminating their state’s income tax and two states considering enacting flat income tax rates. A handful of states are also likely to consider cutting corporate income taxes. The benefits of these tax cuts are largely skewed toward wealthy individuals, large corporations, and those who need help the least.

Instead of wasting budget surpluses on regressive tax cuts that do not lead to economic growth or increased productivity in the economy, state legislatures should expand the vital services that people rely on, services where they want increased investments. Regardless, a number of governors and state legislative leaders—both Democrats and Republicans alike—already are leading the way this year by proposing investments in programs to support children and families that are chronically underfunded, including child care, mental health, after-school services, and behavioral health programs.

  • Leaders in Hawaii put together a plan to provide universal pre-K for 3- and 4-year-olds by 2032, building on an initial $200 million appropriation from the legislature last year.
  • Gov. J.B. Pritzker said he hopes Illinois can become the “number one” state in the country for child care access. While the state has a long way to go, it’s beginning to make progress. In last year’s state budget, Illinois increased its state early education block grant by 10% after remaining unchanged over the previous three years. It also allocated $7 million to the budget for the Illinois Department of Human Services’ Early Intervention program after being cut the previous year.
  • In Indiana, Gov. Eric Holcomb emphasized early childhood programs as a priority and state Democrats also have said they will push for expanding state funding in pre-K programs.
  • Gov. Gretchen Whitmer in Michigan announced her plans to create free, universal pre-K for all 4-year-olds.
  • Minnesota Gov. Tim Waltz released his proposed budget to use the state’s surplus to expand child care subsidies and tax credits; increase access for public pre-K; create a new Department of Children, Youth, and Families; and spend $158 million to improve mental and behavioral health for children and youth.
  • Missouri Gov, Mike Parson said one of his top priorities this year will be to expand access to child care programs. He has proposed spending more than $100 million on child care subsidies, child care provider tax credits, and pre-K for children from low-income families.
  • In her state-of-the-state address, New York Gov. Kathy Hochul announced she would focus on the lack of affordability of child care and would spend $100 million to expand the capacity of child care centers. State legislative leaders are pushing for an even more ambitious investment.
  • Legislators in Vermont introduced legislation to implement full-day prekindergarten for 4-year-olds in every public school district, significantly expand child care subsidies for families, and increase reimbursement rates for private providers. Gov. Phil Scott also proposed increasing funding for child care and after-school programs by $56 million to a total state investment of $120 million.
  • Gov. Glenn Youngkin in Virginia outlined his plan to overhaul the state’s behavioral health system, including a 20% increase in spending in the state’s mental health system  and $230 million in additional spending in the first year of his three-year plan.
  • In Wisconsin, Gov. Tony Evers proposed spending $500 million to expand access to mental and behavioral health services.

State leaders should follow through on the promises they’ve made to their constituents and ensure that the investments they make in children and youth are sustainable for years to come.

Josh Weinstock is a senior policy associate at Children’s Funding Project.