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Budget watchdog says state lawmakers must plan for future ‘fiscal cliff’ when crafting budget

Gov. Kathy Hochul presents her fiscal year 2024 executive budget proposal on Feb. 1, 2023, in the Red Room at the State Capitol.
Mike Groll
Office of Gov. Kathy Hochul
Gov. Kathy Hochul presents her fiscal year 2024 executive budget proposal on Feb. 1, 2023, in the Red Room at the State Capitol.

The New York state budget is due in just over a month, and Gov. Kathy Hochul’s recently released financial report shows the state with a healthy $8.7 billion surplus.

But fiscal watchdogs, as well as Republicans in the State Legislature, say that won’t last – and they are urging caution when it comes to spending.

Hochul’s proposed $227 billion spending plan is 2.4% larger than last year’s budget. She wants to increase school aid by 10% to fulfill a promise to carry out a court order to fully fund the state’s poorest schools. She also wants to increase health care spending, including on the state’s portion of Medicaid, by 9% next year, or nearly $3 billion, and by 14% in the following year.

That’s higher than the average of 4% growth per year under her predecessor, former Gov. Andrew Cuomo.

This year’s surplus is due to higher-than-anticipated tax collections and leftover funds from federal relief packages. Hochul said that’s enough to pay for the increases. But she said she knows that won’t last, and we can’t count on “the sun shining forever.”

“The umbrellas are out. A majority of economists are predicting a recession,” Hochul said on Feb. 1. “But the good news is we’re prepared.”

Hochul has already increased reserve funds from 4% of the total budget to 15% by the end of the new fiscal year, for a total of $24 billion.

Patrick Orecki with the fiscal watchdog group Citizens Budget Commission said the governor is smart to set aside money for the future.

“In the short term, accelerating the deposits to the reserves are a really, really good thing. That’s big,” Orecki said. “And being prepared for a recession is really important.”

But he said the reserves aren’t enough to offset the proposed spending increases that will cause a “fiscal cliff.” He said that could cause deficits as large as $9 billion in just a couple of years.

Orecki believes the higher-than-expected tax revenue collections are an anomaly because of the changes to deducting state and local taxes, known as SALT, from federal tax returns.

He said the governor’s own budget office predicted that tax revenues will start to decline beginning next year.

The budget office also said more bad news is in store. It expects wage growth to slow by 2.4%, and said Wall Street bonuses, which are a significant source of tax revenue for the state, could decline by 27%.

Traditionally, the governor’s budget proposal represents the floor for state spending, and the Legislature then tries to increase it. But Orecki said lawmakers would be wise to curb that impulse this year.

“An emphasis on restraining spending now, and trying not to grow those gaps any further, is really important,” Orecki said. “It will make closing them in the future easier.”

The state Senate and Assembly are due to release their spending proposals on March 14.

Karen DeWitt is Capitol Bureau chief for the New York Public News Network, composed of a dozen newsrooms across the state. She has covered state government and politics for the network since 1990.