Comptroller DiNapoli warns NYS budget may not be ready to deal with fed cuts

ALBANY — The state budget adopted last month fails to adequately account for threatened federal aid cuts estimated at more than $10 billion that could also more than double the number of New Yorkers without health insurance, according to a budget analysis by state Comptroller Thomas DiNapoli.

The $254 billion budget adopted in May, a month late, increases spending by 5.2% and continues a trend of significant growth since 2019, DiNapoli said Monday.

"The stakes are high for New York if the cuts being discussed in Washington occur," DiNapoli said Monday. "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."

DiNapoli also said that while Gov. Kathy Hochul and the State Legislature took some measures to prepare for federal aid cuts planned by President Donald Trump and the Republican-controlled Congress, "the state needs to do what it can to prepare in a transparent manner before our options are even more limited."

Hochul’s budget spokesman, Tim Ruffinen, said the budget is sound and the state is prepared to face deep cuts from Washington. Those cuts would have to be approved by the U.S. Senate and withstand expected court challenges.

Ruffinen noted that the state budget maintains the state’s high credit rating among outside analysts who rate the credit worthiness of governments, while providing $4 billion in tax rebate checks, other tax breaks and affordability measures for New Yorkers.

"In the event of an extraordinary economic downturn which results in a sudden general fund imbalance ... the budget provides the Division of Budget with budgetary powers to quickly respond and protect New York state’s finances," Ruffinen said in a statement to Newsday.

DiNapoli’s annual review of state budgets found:

• Total spending including capital costs and programs that get federal funding increased 5.2%.
• Spending on state operating funds alone to run the government grew an average of 4.6% annually since 2019, "more than double the preceding five-year period."
• Negotiations between the Democratic governor and Democratic legislative leaders since March resulted in school aid growing 0.6% over the proposed 4.9% increase under Hochul’s budget proposal to the legislature in January.
• Medicaid spending that funds hospitals and low- and moderate-income New Yorkers increased $7.7 billion, or an increase of 7.6% over the fiscal year that ended March 31. The closed-door budget negotiations increased Medicaid spending by $1.7 billion over Hochul’s proposal in January.

DiNapoli warned that the projected revenue in the budget — less than 1% more than the last fiscal year — may not be attainable because of economic uncertainty.

DiNapoli’s report said "a projected acceleration of inflation" triggered in part by Trump’s tariffs on imports that is expected to raise prices of goods and services may impact state sales tax revenue. DiNapoli said growing inflation could also reduce revenue from tourism including taxes from hotels, restaurants and other vacation purchasing as well as income taxes from fewer workers employed in the tourism and hospitality fields.

DiNapoli said there are already 11,200 fewer jobs in those fields since January.

DiNapoli warned the federal cuts approved by Congress and now being considered by the Republican-led Senate could cost New York $10.1 billion in federal aid and prompt the state to spend $3.3 billion more. He said federal cuts could increase the number of moderate- and middle-income New Yorkers without health insurance to 2.4 million, from about 938,000 now.

DiNapoli, whose constitutional duties include auditing state spending, said Hochul and the legislature must continue to build reserves and focus on efficiency while developing a greater plan to compensate for federal aid cuts.

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.