New York State budget: Focus will be mostly about money, not policy

ALBANY — Gov. Kathy Hochul’s first two budgets granted generous spending increases across the board, thanks in part to federal pandemic aid.

With surpluses in hand, the governor and state legislators wrangled not so much about money but controversial policies on housing, transportation and crime.

But the lay of the land is a bit different now.

New York State is facing a deficit and lawmakers and watchdogs expect some belt tightening, although perhaps not actual spending cuts. Also, New York’s 213 state legislative seats and 26 congressional seats will be up for election in November, which could impact how cautious lawmakers get this year.

“Policy has been the sticking point for the last two years,” Assemb. Fred Thiele (D-Sag Harbor) said. “This year, in the face of a deficit, funding priorities will be the big challenge.”

Hochul is slated to unveil her proposal Tuesday for fiscal 2024-25. She and the State Legislature are supposed to adopt a plan by April 1.

Last year, the Democratic governor and Democratic-led legislature approved a $229 billion budget — a roughly $9 billion increase over the previous year.

It included a record amount for school districts, big capital budgets for higher education, the largest Medicaid reimbursement bump for hospitals in two decades and even increases for local district attorney offices.

But as 2024 begins, the federal pandemic aid has been mostly used up, and the state faces about a $4 billion deficit. That will put pressure on lawmakers.

No schools will want spending freezes — and the State Legislature won’t want that either in an election year.

Add to it the burgeoning issue of handling the influx of migrants in the state.

Also, hospitals and unions are making a push for big spending increases in Medicaid, contending the state reimbursements still don’t match hospitals’ costs for covering Medicaid patients. The groups have launched a $10 million advertising campaign.

The state spends roughly $35 billion on Medicaid programs; federal and local contributions more than double the total, according to state Division of the Budget reports. Even without the boost unions are requesting, program costs are expected to rise another 6% this year, a watchdog group said.

“It’s the biggest program in the budget and it’s growing faster than any other,” said Patrick Orecki, an analyst with the Citizens Budget Commission of New York, which monitors government finances.

The commission has praised Hochul for using the recent surpluses to bulk up New York’s “rainy day” reserves. It’s advising lawmakers against tapping into reserves now just because finances are tighter.

“It’s really been one of the biggest accomplishments of the last decade. Rainy day reserves now are $20 million — that’s 10 times greater than they were pre-pandemic, and the state is in a much better position to handle a downturn,” Orecki said.

Depleting those reserves now would be “the wrong step” because, among other things, current state spending trends are outpacing revenue forecasts, he said.

In contrast, the progressive Fiscal Policy Institute notes that last spring the state’s deficit was projected to be more than $9 billion — and it’s now less than half that amount. The trend suggests the state is in a better position than some believe and could have more to invest in programs this year, the Fiscal Policy Institute says.

“Tax [revenue] projections consistently have come in ahead of expectations and we expect an improved fiscal outlook,” said Nathan Gusdorf, the Fiscal Policy Institute’s executive director. “We don’t want to be overconfident, but at the same time there are downsides to being too bearish because then the state can’t address problems.”

In particular, the Fiscal Policy Institute said the state should boost spending on affordable housing, beef up the state workforce and invest more in the 64-campus State University of New York system, where some campuses have announced program reductions and physical consolidations.

Hochul delivered her State of the State address on Tuesday, the annual speech in which a governor outlines priorities and goals for the year. As with every governor, these speeches always are long on general ideas — increase housing stock — but short on details about how to pay for and enact programs. That part is contained in a governor’s proposed budget. Typically, a governor comes in with a floor for spending and the legislature tries to push it higher. The question is always “how much higher?”

Lawmakers and lobbyists noted Hochul’s speech steered clear of controversy, focused on everyday “affordability” issues and didn’t suggest big spending hikes.

But the details will be hashed out beginning next week and covering the next several months.

“It’s a pivotal year for the state financially,” said Edmund J. McMahon, of the fiscally conservative Empire Center for Public Policy, a think tank based in Albany. “It also happens to be an election year for the legislators. So there certainly should be more tension than in the last two Hochul budgets.”

McMahon noted the big pressures will be on education, health care and aid to help New York City and other locales with handling incoming migrants.

“The governor can’t fund all those without rapidly depleting her reserves or raising taxes,” McMahon said. “Or both.”

By Yancey Roy

yancey.roy@newsday.com@yanceyroy