Any hope that the extended deadline for the current budget negotiations in Albany will result in a more modest New York State budget tailored for today’s economic environment is highly misplaced.
Gov. Hochul initially proposed an inflated $252 billion budget. This budget represents a spending growth of nearly 11%, which, other than the governor’s 2022 budget, is the highest spending rate in more than a decade. It is also $100 billion — or about 60% — more than the state budget 10 years ago. Still, state legislators seek to add billions for more state programs.
New York State’s tax receipts and economic performance may have exceeded expectations in 2024. But current economic indicators based on a declining stock market and high economic uncertainty are not as rosy. And, President Trump intends to scale back monies for state and local governments while pushing more costs on states and cities. It is not the time to be pushing limits.
Even without factoring in such recent uncertainty injected into the national economy, this budget falls short of what New York must do to address the needs of today.
This budget does little to help New York State regain its standing as the nation’s leading state, deter individuals and companies from leaving for other states, or allocate sufficient funding to undertake investment in the future of the state.
Our Empire State has the nation’s third largest state economy, with a GDP north of $2 trillion annually. It needs to be fiscally prudent to continue to attract outside investment and avoid any impact on its borrowing costs and credit rankings.
The budget also fails to change New York State’s unfortunate narrative as the leading state for taxes and second in spending in the country. Overall program spending is increasing almost across the board. Democrats in Albany risk being labeled as the party of simply tax and spend.
Similarly, a cessation of the “temporary” personal income tax increase would send a strong message that the state wants to change direction. Of course, the rich can afford it; they are also highly mobile and can afford to move elsewhere. The top 1% of taxpayers who underwrite approximately 50% of all social services in New York need to stay put.
A $3 billion “inflation” rebate doled out to hurting New Yorkers in $300 increments is meaningful support for rent, utilities or food in these difficult times. But such a political gimmick in advance of a reelection year would be better invested in longer term solutions such as innovative child care programs, significant housing investments or a game changing initiative that yields lasting dividends for the future of New York.
A deeper dive into the budget reveals that rising Medicaid costs represent a significant part of the budget’s increases. Medicaid, which represents a little less than 40% of the budget, relies on almost $58 billion from the federal government or more than a third of the money that New York State receives from the federal government. Yet, no effort to thoughtfully manage Medicaid premiums is evident, particularly at a time when Congress has its eyes set on cutting this line item nationally, disproportionately impacting New York.
The budget also kicks the proverbial can down the road with respect to certain costs, most notably leading to an apparent $18 billion gap in 2029. Previous budgets have contained larger gaps. But budget gaps do not always go away and may place a higher burden on future New Yorkers.
Unlike typical households who save money for a rainy day, the governor and our legislators are blindly seeing only sunny skies when a storm is brewing. Insufficient funds are being set aside to provide greater flexibility to address these looming uncertainties and other possible reverberations to the Trump administration’s policies. For example, the state may suffer reduced tourism dollars from Canadians and others who are vowing not to travel to the United States to protest the tariffs.
The DOGE sledgehammer in Washington is unpopular. But a scalpel approach that reviews agency costs and delivers better results will help streamline our state government. No country, state or city can continue to spend beyond its means without eventual negative repercussions.
In times of great uncertainty, regions that adapt, innovate and respond smartly to changing times rise to the top. New York State must do that now.
Gertler is CEO of U.S. News & World Report and the former CEO of Empire State Development.
