Despite an estimated four-year $8.6 billion maintenance level shortfall—the difference between the cost to continue current services into the next biennium and expected resources—the Legislature increased appropriations from funds subject to the outlook (NGFO) for 2025–27 by a net of $5.913 billion.

NGFO appropriations for the upcoming 2025–27 biennium total $77.858 billion, an increase of 8.2% over the 2024 supplemental. After accounting for vetoes, the unrestricted NGFO ending balance was estimated to be just $80 million at the end of 2025–27 and $381 million at the end of 2027–29. (The June revenue forecast reduces those ending balances to an estimated $2 million in 2025–27 and negative $331 million in 2027–29.)

To fund new policy spending over the outlook period (FY 2025, 2025–27, and 2027–29), the enacted budget added $9 billion in new taxes and cut spending on previous priorities by $6.982 billion. Some of the savings are actual program eliminations and reductions, but others are program delays, shifts to other funding sources, and agency efficiencies.

The savings are more than offset by $8.413 billion in new appropriations over the outlook period. Effectively, funding is shifted to new priorities (primarily employee compensation). The net policy change for compensation is an increase of $3.012 billion over the outlook period. All other budget areas combine for a net policy decrease of $1.580 billion.

Notably, a larger revenue package would not have prevented the spending reductions. The original Senate proposal would have increased taxes by $21 billion over the five-year outlook period. It still incorporated $6.9 billion in savings. The new revenues in the Senate proposal would have been used to add higher levels of new spending and to leave a higher unrestricted ending balance. (Similarly, the original House proposal would have increased taxes by about $15 billion and included savings of $5.9 billion.)

The sustainability of the 2025–27 operating budget is highly questionable. In addition to leaving a very small ending fund balance, the Legislature made several worrying choices that mirror the choices that caused the recent shortfall. The Legislature reduced spending and increased taxes, but instead of solving the problem, the budget presages more problems in the future. Indeed, the state is almost certain to face another shortfall in 2026.

Read the report here.