State budgets are facing a tighter fiscal situation than they have in several years due to a combination of recent federal budget cuts and the effects of state tax cuts from previous years. But it is within the power of state policymakers to protect and expand funding for vital services despite the challenging fiscal environment. We are seeing states use that power to continue to push for dedicated funding for children and youth, a funding approach that has become increasingly common in recent years.

The Price of Funding Cuts

After a brief dip in 2020, state budgets saw growing revenue and record surpluses for several years from a combination of federal aid to states and relatively rapid economic growth following the pandemic. But nearly every state used this opportunity to reduce revenue by cutting ongoing taxes in some way. Estimates of this ongoing revenue loss show that states are collecting more than $100 billion less annually than they would have otherwise collected. State revenue was already beginning to fall based on these state policy choices even before President Trump signed a bill into law this summer that includes the most significant changes to several major social service programs, including cutting hundreds of billions of dollars in funding for states for Medicaid and the Supplemental Nutrition Assistance Program.

This means that states will need to make tougher budget choices than they have in recent years.

At Least Three States Pursue Dedicated Funding This Year

Although it is still early in the state legislative season, we are seeing advocates and legislators continue to push for more funding for programs and services for children and youth despite the challenging environment this year. Policymakers in several states are attempting to raise general revenue to respond to this challenge, which we will discuss in greater depth in an upcoming blog post. But during their current legislative sessions, policymakers in three states so far have introduced legislation that would create dedicated funding streams for programs for children and youth:

• Proposed legislation in Virginia would enact a millionaire’s tax and dedicate a portion of the revenue to child care.
• Proposed legislation in Nebraska would increase the tax rate on certain cash-based gaming devices to fund child care subsidies.
• Proposed legislation in Maryland would tax certain social media services in order to establish a mental health fund for children and youth.
  

This continues a trend we noted in our paper State Strategies for Sustained Investment in Kids: A Landscape of Dedicated Funding. For decades, states have established dedicated funds to ensure that programs for children and youth have ongoing revenue, but the interest and policy enactment has increased rapidly in recent years. Click on the image to enlarge the timeline from our paper.

At least one state has created a new fund for children and youth each year since 2017, and we hope that trend continues in 2026.

Bruno Showers is state policy manager at Children’s Funding Project.