Finances are an afterthought as state leaders approach a budget deal

With all the talk of nonfiscal policy items in the state budget so far, one might forget that it is, in fact, a financial plan first and foremost. State leaders seem close to wrapping up the thorniest issues, including changes to the discovery law and involuntary commitment, which means that they can finally get to the billions of dollars on the table for the budget. With looming uncertainty about federal cuts and a potential recession on the horizon, the state’s finances are not a sure thing. But don’t worry, Assembly Speaker Carl Heastie has repeatedly assured reporters that the money part of the budget could get done in a snap. 

Gov. Kathy Hochul in January proposed a record $252 billion budget. The final spending plan will likely be even larger, even if only by a little, as the Legislature generally pushes for more spending than the governor – the state Senate proposed a $259 billion plan and the Assembly a $256.5 billion one. Of that money, roughly $91 billion is expected to come from the federal government. It seems increasingly likely that New York and other states should expect deep cuts to that funding stream – but without any specifics yet, leaders are content to take a wait-and-see approach to how to deal with it. 

On the executive side, both Hochul and her budget director Blake Washington have said that nothing the state does will be able to backfill federal cuts to crucial services. In New York, Medicaid stands to suffer the most, as that’s where most of the federal dollars go towards. “The only way you can really backfill on the state side is to cut services for other things, and you sort of modify spending across the platform,” Washington told reporters on April 1, the day the budget was technically due.

Legislative leaders have made similar statements. “There is no large amount of money that is going to backfill all of these cuts and all of the potential of the cuts,” state Senate Majority Leader Andrea Stewart-Cousins said earlier this month. “So we really need for our Congress members to do their job.” Heastie has said that he won’t address the potential of federal cuts until they actually materialize – meaning that a special session later in the year to deal with those may be in the cards. “Since we've gotten nothing direct from the feds or the Republicans as to what they would cut, I don't know why I would do a budget that anticipates cuts that – I don't even know if the Republicans can do this,” Heastie said late last month.

Even as the governor and legislative leaders continue their wait-and-see approach to both the recession and federal cuts, state Comptroller Tom DiNapoli has released reports in the past month that included warnings about the state’s precarious financial future. In his March State Cash Report, DiNapoli said that the state had collected more taxes in the previous fiscal year than predicted in the governor’s January budget proposal. But he warned that economic growth may not last. “Policy decisions at the federal level, such as tariffs and federal aid cuts, are currently causing economic uncertainty,” DiNapoli said in a statement. “While the actual impact of these policies is unknown, the heightened risks they pose should be considered as the enacted budget for SFY 2025-26 is finalized.”

The comptroller released another report this week that found that the state still receives slightly more money from the federal government than it receives, thanks to the last of the pandemic aid, but he said that is set to change, too. “Actions taken by the Trump Administration and Congress may cut health care, food assistance, infrastructure and other critical programs to the detriment of all New Yorkers,” DiNapoli said in a statement. “Major cuts in federal funding simply cannot be replaced by state taxpayers, will reduce the services the state provides and will exacerbate the long-standing history of New Yorkers sending more of their hard-earned tax dollars to the federal government than they get back.”

Of course, some cuts have already materialized, with the state losing out on over $300 million for health and addiction services that had already been appropriated. New York and other states are fighting the cut in courts. According to the left-leaning Fiscal Policy Institute, the state has lost a total of at least $900 million already from federal cuts. The think tank earlier this week advised that leaders should proceed with caution when it comes to the state’s finances. “Many have criticized the late budget, but with an incredibly uncertain economic outlook and significant risks to federal funding, state policymakers have every reason to make slow and careful decisions,” Fiscal Policy Institute Director Nathan Gusdorf said in a statement. The group recommended increasing taxes on high earners in anticipation of federal cuts and opposed Hochul’s proposal to send out “inflation rebate” checks to most New Yorkers, arguing that there were better uses for a $3 billion tax surplus.

Proceeding with caution is something that both sides of the ideological aisle can agree on, even if different groups disagree on the best path forward. The fiscally conservative Citizens Budget Commission similarly advised lawmakers to reject the governor’s proposed “inflation rebate” checks and to plan for federal cuts and a turbulent fiscal outlook. “The budget should set aside at least $2 billion to mitigate potential federal cuts and not spread $3 billion so thinly among taxpayers that it won’t help affordability,” Citizens Budget Commission President Andrew Rein said in a statement the day on April 1. In an op-ed from this week, the group’s director of state policies Patrick Orecki dinged leaders for allowing nonfiscal issues to take up all the air in the negotiating room. “The critical budget issues are how the State will prepare for potentially massive federal cuts and a possible recession, stabilize its precarious fiscal house of cards, raise and spend over $252 billion of taxpayer money, and improve New York’s affordability,” he wrote.

But this is the easy stuff, apparently. “Like I said, we could probably knock out numbers in just a matter of hours,” Heastie told reporters last month.