The big Albany news last week was the unveiling of Governor Hochul’s 2025-2026 Executive Budget. This raises the curtain on the budget process and while hammering out a final budget is rarely easy, the prospects for the governor’s plans are boosted by forecasted surpluses of $3.5 billion in the current fiscal year and another $1.8 billion for the fiscal year starting on April 1.
The themes of her budget address, tracking her State of the State presentation a week earlier, was unmistakable: making New York more “affordable” and combatting crime. “This year’s budget will put money back in New Yorkers’ pockets and make our streets and subways safer.” Her budget address worked around those themes and offered little else that could crowd out her message.
The governor proposed that the bulk of the state’s budget surpluses be used to fund “affordability” measures: $3 billion for refund checks to 8.6 million New Yorkers and $1 billion in middle-class tax cuts for New Yorkers who file jointly and earn up to $323,000 annually.
That surplus is the result of higher-than-expected tax revenues. The governor also laid the groundwork for tougher days ahead — particularly if the new administration in Washington follows through on its plans to cut spending in ways that impact New York. While the spending plans of the new Trump Administration are not yet clear, the governor’s budget does anticipate that New York will receive $90.8 billion in federal funding in the coming fiscal year. Her budget projects state reserve funds of more than $20 billion.
The governor’s $252 billion budget proposal covers a lot of ground, calling for more money for existing programs, as well as offering new policy initiatives. The governor wants increases in education spending by boosting state aid for schools by $1.7 billion. She proposes hikes in the state share of Medicaid spending, which now totals about $100 billion – the largest portion of the state budget.
The governor also proposes to extend the current “millionaires tax,” which was due to expire in 2027. Her plan extends it through 2032.
The governor would use some of the surpluses to fund new measures to offset child care costs, including plans to spend over $800 million to expand the Child Tax Credit over two years. That tax credit would give eligible parents $1,000 for children under 4-years-old and $500 for those aged 4-16. She also proposed $340 million to provide free school breakfast and free school lunch for every student in New York.
However, on the darker side, the state Comptroller warned of “out-year budget gaps of $23.2 billion for the next three fiscal years,” which casts a shadow over the governor’s proposal.
One of the biggest problems facing the state is the eroding finances of the downstate mass transit system, run by the Metropolitan Transportation Authority (MTA). Late last year, the MTA released its capital budget plan for the next five years.
The plan calls for $68.4 billion in spending over the 2025-2029 period. Where will the money come from? Billions will be generated by Manhattan tolls from the congestion pricing. The MTA will generate billions more through debt financing and toll revenue-backed bonds. After that, the MTA was counting on federal grants and from New York State and New York City in direct funding, for a total of $35 billion.
That leaves the MTA trying to fill a $33-billion capital budget hole. In one of the most unusual plans offered in a state budget, the governor “assumes” revenue would materialize, presumably subject to final budget negotiations. The executive budget “assumes” billions in revenue from the state, billions from the City of New York, billions from the MTA and billions more from the federal government. If any of those assumptions fail to become reality, there will be a big hole in the MTA’s capital plan.
In a move that has already generated criticism from environmentalists, her plan does not include implementation of the “cap-and-invest” program that was supposed to be up-and-running this year. “Cap and invest” would establish a tightening cap on greenhouse gas emissions and invest the proceeds from polluter-paid fees. The plan charges a fee to large-scale greenhouse gas emitters and distributors of heating and transportation fuels, requiring they purchase pollution allowances for their activities. Proceeds would support clean energy investments in addition to funding annual rebates to all New Yorkers to offset potential consumer additional costs. The governor is kicking the can on this issue – presumably due to concerns it will increase energy costs for consumers.
Failing to act, of course, will lead to bigger problems with a worsening climate catastrophe. According to state experts, that would be a huge mistake in light of “the cost of inaction in New York State exceeding the cost of action by more than $115 billion.”
More will be learned as the governor’s plans are scrutinized through the legislative hearing process, starting this week. Under New York’s Constitution, the governor has the whip hand in the process and wins a lot more than she loses in Albany’s budget fights. Too often, Albany forgets exactly whose money it is that they’re fighting over. In order for the governor and state lawmakers to get it right, we have to stay engaged. Stay tuned.