As Gov. Hochul unveils proposed state budget, future fiscal issues loom

ALBANY — Gov. Kathy Hochul is set to propose a state budget Wednesday while facing a challenging fiscal and political dilemma:

New York is flush with cash now, but potential financial problems are just a few years away.

Then add political tension to the mix. Senate Democrats just recently dealt Hochul a huge blow by blocking — so far — her nominee to be New York’s chief judge. It’s the biggest fight Hochul has had with legislators since becoming governor in August 2021 and it could color budget negotiations going forward.

And there is the wild card of how many non-budget policies the governor might try to include in the budget — such as bail reform and another minimum wage hike.

Hochul, a Democrat, enters her second full year in office with the state in good condition. Just weeks ago, a state comptroller’s report said tax revenue is coming in at nearly $8 billion more than what was projected in 2022. The state’s general fund holds about $10 billion more than was forecast last year.

But extraordinary federal pandemic aid — which spurred huge spending increases in the last two state budgets — is fading away. Further, the state’s own multiyear projects forecast shows a possible $6 billion budget gap in 2027, according to the Citizens Budget Commission, a watchdog group.

So while the governor assuredly will propose some sort of spending increase for the 2023-2024 fiscal year, it probably will be smaller than state legislators want but probably too large for fiscal watchdogs.

“State coffers are bulging, but the risks are real,” said Andrew Rein, CBC president. The group is urging lawmakers to resist the “catnip” of a short-term spending boost that could create huge future obligations.

“We’re saying, don’t create new fiscal cliffs just because you have money in your pockets today,” Rein said.

The last two years, New York lawmakers have approved whopping spending increases — $26 billion — thanks in part to federal pandemic aid.

Last year alone, Hochul, the Assembly and Senate approved a state budget of $220 billion, which was an $8 billion increase over the previous year. They also managed to put away more money in New York’s reserve funds.

With the state flush, many groups are lining up requests for spending increases — for affordable housing, environmental protection, child care, education and more.

Hochul hasn’t foreshadowed much of what she will propose. But in her State of the State address three weeks ago, the governor said she would call for adding billion of dollars in aid for K-12 school districts, increase staffing incentives for health care workers, create tax credits for farmers to help pay overtime wages, and increase spending on mental health programs to boost inpatient bed capacity.

She didn’t call for any tax increases — but she did propose a 3% tuition hike at New York’s public colleges and universities.

Fiscal watchdogs are calling on lawmakers to keep state spending growth at around 2% and put away even more in reserve funds.

Given the dynamic that the State Legislature always seeks to boost spending above what a governor initially requests, it will be up to Hochul to start with a low number and hold the line, watchdogs say.

“Going back to Rockefeller, it’s the governor who has to remind the Legislature there has to be limits,” said E.J. McMahon, senior fellow at the Empire Center, a conservative think tank. “You don’t have to do it in an overbearing way — you just have to remind them.”

Even State Comptroller Thomas P. DiNapoli, while reporting the surge in tax revenue, has urged caution.

“Tax collections continued to exceed projections through December,” DiNapoli said in his report. “However, concerns of an economic downturn and a cloudy revenue picture continue to create uncertainty. These conditions reinforce the importance of increasing rainy day reserve funds on or ahead of schedule.”

Lawmakers are supposed to adopt a budget by April 1, the start of New York’s fiscal year.

By Yancey Roy

yancey.roy@newsday.com@yanceyroy