Impacts of Federal Budget and Policy Changes on State and Local Government Finance

Session Submission Type: Panel Discussion

Abstract

Policies of the Trump Administration in combination with the FY 2026 federal budget will create both challenges and opportunities for state and local governments. In its first few months, the Administration has taken steps to make the receipt of Title I grants (targeted to students from poor families) conditional on accepting Administration-mandated curriculum changes. However, in justifying its policy to eliminate the federal Department of Education, the Administration has argued that education policy should be returned to state and local control. Large staff reductions in federal agencies and the resulting loss of expertise may also compromise the ability of state and local government officials to deliver services. Although at this point (May 2025), the details of the FY2026 budget are unclear, it is likely that the extension of the 2017 Tax Cuts and Jobs Act plus additional Administration tax cut proposals will necessitate substantial reductions in federal grants to state and local governments, including cuts in Medicaid. The 2026 budget may also include the conversion of existing grant programs, especially in the area of education and health, into block grants and changes in the cap on state and local tax deductions.
This panel brings together academic experts, policy experts, and a state/local government official to discuss the extent to which federal policies have upended longstanding fiscal relationships between the federal government and subnational governments or basic principles of fiscal federalism in the U.S. The panel will also discuss the likely fiscal and economic impacts of federal budget and policy changes. The panel will focus both on the fiscal challenges faced by state and local governments in light of these changes and on the opportunities these changes provide for improving the delivery of public services.
Organizers: Daphne Kenyon & Andrew Reschovsky, Professor Emeritus, University of Wisconsin

Subject Area

• State and Local Taxes Including Property Taxes

Moderator

• Daphne Kenyon, daknh433@gmail.com

Panelists

• Thomas A. Downes, Tufts University

• Thomas Brosy, Urban-Brookings tax policy center

• Scott Pattison, Federation of Tax Administrators

• David Agrawal, University of California, Irvine

• Fitzroy Lee, OCFO/Office of Revenue Analysis

Session Organizer

• Andrew Reschovsky, University of Wisconsin-Madison