Winston Churchill famously warned, “never let a good crisis go to waste.” New Yorkers will be better off if Gov. Hochul and legislative leaders make smart choices to prevent a crisis in the first place.
This coming budget season, state leaders will be tempted to boost spending that garners good will today but generates bad consequences tomorrow. Instead, they should make smart yet hard choices: to fund high-impact priorities by shifting money from ineffective programs while holding the line on taxes. This path would protect vulnerable New Yorkers from a future fiscal reckoning and strengthen the state’s economic competitiveness.
The pressure to boost spending and raise taxes is intense. Hochul, a child care and affordability champion, may yield to election-year temptation to balloon myriad programs. Mayor Mamdani inspired voters with an expansive platform to deliver affordability and raise taxes.
Compounding the stress, the state must reckon with significant federal cuts and better fortify against a recession.
These pressures could produce a tsunami that fractures the state’s fiscal foundation, self-inflicts a crisis ultimately demanding drastic cuts, and cripples its competitiveness. The state already faces a massive $20 billion structural budget gap, the nation’s highest taxes, and outmigration across all income groups.
Unfortunately, New York’s leaders may choose to duck the hard choices for now. Ample money is available to buy politically popular choices today, even if they undermine tomorrow.
Albany likely has $8 billion at its disposal for the next budget from strong tax revenues, lower spending, and a “transaction risk” budget cushion. The state could use $4 billion to close next year’s budget gap and $4 billion to mount additional child care, housing, and other programs on top of increasingly unaffordable spending, already slated to grow $6.5 billion.
Calls for higher spending and resistance to cutting low-impact programs increase pressure to raise taxes. The governor rightly opposes raising nation-leading personal income taxes but may be cracking open the door to raising business or other taxes to respond to federal cuts.
Further increasing spending and raising taxes now would be a harmful mistake and unnecessary to deliver the services New Yorkers need.
New York’s budget is already massive and unaffordable. State operating funds spending grew nearly twice as fast as inflation — about $9 billion per year — since FY2020. Stunningly, New York State and its localities would save $11 billion by spending what California does per person, and $80 billion by spending like New Jersey.
New York also is the highest taxed state in the nation. The state and localities collect proportionately more taxes than California, New Jersey, and Connecticut — let alone Florida and Texas.
City residents face the nation’s highest top income tax rate. The state is growing millionaires more slowly than other states and would be collecting $10 billion more revenue annually if its share of the nation’s millionaires held steady since 2010.
Businesses also bear New York’s heavy tax burden. The combined corporate tax rate in New York City is 17.44%, overshadowing New Jersey’s 11.5%. High taxes squeeze margins and send a discouraging signal to firms.
To prevent creating a fiscal and competitiveness crisis, Albany should take four steps:
- First, hold the line on taxes. Higher taxes risk dislocation, are unnecessary, and should not be proposed in the Executive Budget. More significant federal cuts may well justify riskier choices….later.
- Second, deliver services that work. Drive quality and efficiency with performance data, accountability, and targeted programs. Ensure child care programs work well and focus expansion on lower income New Yorkers. Improve accountability to get more than middling results from per-student education spending that is twice the national average. Refocus the Future of Health Care Commission on improving quality and controlling Medicaid costs by restraining exceptionally high spending on long-term and home care.
- Third, shift dollars from lower-impact programs to affordability and other priority programs. Stop protecting sacred cows like school aid. End aid increases to districts with declining enrollment to save $500 million annually. Redirect $2.5 billion in state aid provided to wealthy districts that already self-fund a sound basic education. Curb the $5 billion in economic development tax breaks and programs that fail to deliver results.
- Finally, protect and build Rainy Day reserves. They now are insufficient to weather a recession.
New Yorkers should accept a simple truth: We cannot fund every possible desire now without paying a far higher price tomorrow. If state leaders make these smart — but hard — choices, the payoff will be greater affordability, better services, sustained competitiveness, and protection against recessions and federal cuts.
Rein is president of the Citizens Budget Commission.
