The Enacted Budget for State Fiscal Year (SFY) 2025-26 is projected to total $254 billion, a 5.2% increase in spending at a time when new federal actions on funding and policy may change the relationship between the federal government and states. Actions that have already occurred at the federal level, paired with potential Congressional action, may mean that in the upcoming months New York will see challenges to the recently Enacted State Budget, according to a report by State Comptroller Thomas P. DiNapoli.
“The stakes are high for New York if the cuts being discussed in Washington occur,” DiNapoli said. “The state needs to do what it can to stabilize finances, build reserve funds, focus on efficient service delivery and develop a strategy for how to contend with federal changes. The final budget had some measures built into help navigate this uncertainty, but the state needs to do what it can to prepare in a transparent manner before our options are even more limited.”
Major Spending and Policy Actions
While detailed spending projections are not yet available from the Division of the Budget (DOB), preliminary projections indicate spending will increase. All Funds spending in SFY 2025-26 is projected to total $254 billion, an increase of $12.5 billion from $241.5 billion in SFY 2024-25. State Operating Fund spending is expected to grow 9.3%, continuing a recent trend of significant growth. Between SFY 2019-20 and SFY 2024-2025, State Operating Funds spending grew 4.6% annually on average – more than double the preceding 5-year period.
The big two items in state spending – School Aid and Medicaid – are the primary drivers of these increases. The Enacted Budget provides $37.4 billion in School Aid on a School Year (SY) basis, an increase of $209 million (0.6%) over the Executive Budget and $1.7 billion (4.9%) over SY 2025.
The Enacted Budget appropriates $109.6 billion for Medicaid in the Department of Health’s (DOH) budget for SFY 2025-26, which is an increase of $7.7 billion (7.6%) from the prior year and $1.7 billion (1.6%) over the Executive Budget proposal.
Authorization was also included to transfer up to $8 billion from the General Fund to repay the state’s outstanding advance with the federal Unemployment Trust Fund. If New York eliminates the entire advance, the effective federal unemployment insurance tax rate for New York employers will decrease from 1.5% for 2024 to an effective federal tax rate of 0.6% for 2025. This should provide relief to small businesses across the state and will allow the state to increase benefits for workers which have remained stagnant since 2019.
Lower Revenue Projected
Based on available information, All Funds revenues for SFY 2025-26 are projected to total $248.9 billion, nearly the same as in SFY 2024-25. All Funds tax collections for the current fiscal year are projected to decrease by $474 million (less than 1%) to $117 billion.
Economic uncertainty may affect revenue collections. A projected acceleration in inflation, triggered in part by the impact of tariffs on prices, may affect state sales tax collections. In addition, a continued decline in tourism above what is currently being seen would also negatively impact New York’s revenues, not only through lower sales taxes received from hotel stays, restaurant meals, and souvenir purchases but also from income taxes paid from workers in the leisure and hospitality industry. Since the beginning of the year, there are 11,200 fewer jobs in the industry.
Initial Changes to Federal Revenues
Federal funding is a significant part of the state budget: In SFY 2024-25, federal receipts totaled $96.7 billion or 38.8% of the state’s budget. A range of state services and programs rely on federal funding, although the greatest share – an estimated 87% in SFY 2025-26 – supports health and human services programs. DiNapoli launched an online resource that provides greater detail on federal funding in the budget and for the public safety net in New York state.
On April 29, prior to the adoption of the budget, the Executive reported that $1.3 billion in federal cuts had already been made to state programs—not including separate actions affecting New York’s local governments, universities, and nonprofits. Reductions included $325 million in resiliency funding, $79 million in SUNY research grants, and $24 million for assistance to food banks and farmers. Other actions include elimination of federal staff for the Low Income Home Energy Assistance Program; termination of more than 1,200 federal workers who live in New York; and attempted termination of federal approval of congestion pricing in New York City’s business district which continues to be litigated.
Navigating the Uncertainty
The state has not taken any significant cost containment measures or implemented a strategy for addressing federal cuts, so how these risks will be reflected in DOB’s Enacted Budget Financial Plan for the next four years remains to be seen. Executive and Legislative leaders have acknowledged the actions in Washington may require them to convene a special session. The Enacted Budget does contain language that authorizes the Director of DOB to withhold appropriated funding if any quarterly financial plan update shows an imbalance of $2 billion or more. The state also has nearly $8.8 billion in its statutory rainy day reserve funds, an important safeguard against economic disruptions and tax revenue shortfalls.
According to the Executive, the impact of the House megabill on New York would be far-reaching. An analysis from DOH indicates that the proposed federal changes could result in estimated lost federal funding of $10.1 billion and new state-funded Medicaid costs of $3.3 billion. The Executive estimates the proposal would increase the number of people without health insurance in the state. New York has one of the lowest uninsured rates in the nation (4.8% in 2023, according to the U.S. Census Bureau); if these projections are accurate, the number of uninsured would grow by more than 150%, rising from approximately 938,000 to 2.4 million. Other changes would increase state costs and reduce eligibility for the Supplemental Nutritional Assistance Program, and eliminate funding for the clean energy transition and climate and resiliency programs.
DiNapoli stressed the importance of focusing budget management on the current year and on the potential for drastic changes in the outyears. He recommended continuing to build reserves, both statutory rainy day funds and informal reserves; focusing on efficiency in service delivery, particularly by implementing prior audit recommendations; and developing a strategy for articulating criteria for how the State will respond to federal cuts.