NY can't spend its way out of D.C. trouble

New York State faces sharp fiscal pressure in the final two weeks before the start of the 2026-27 budget year. An agreement has yet to be nailed down at the Capitol on how to address the imbalance between revenues and expenses. The cumulative three-year deficit is projected at nearly $14 billion.

Democrats elected to run state government seem dead set on further taxing the wealthiest individuals and businesses. Options include deeper taxes on incomes, property, sales and corporations. There are new ideas about levies on purchases of gold bullion, on crypto mining — which heavily taps the power grid — as well as ending a sales tax exemption for boats worth $230,000 or more.

Even if Gov. Kathy Hochul bends to legislative leaders — in an election year — despite her previous resistance to new taxes, she and the legislature still must brake and slow spending where reasonable.

Health care costs, and needs, loom huge in Albany as they do in Washington. Since the 2018-19 fiscal year, the state’s share of Medicaid spending has ballooned by an estimated $20.7 billion, or 89%, and stands to grow by billions more in the next few years, according to state Comptroller Thomas DiNapoli, who is also seeking reelection in November.

At a time when the Trump administration, with GOP congressional backing, seeks slashes in this area, New York offers them a particularly tempting political and fiscal target, since it’s known to have the highest per capita Medicaid costs.

Within New York, however, there is heavy populist pressure to “fight back,” that is, try to compensate for federal cuts by hiking Medicaid spending with new revenues to pay for it, at least in part.

The political logic of this is clear. Senate Majority Leader Andrea Stewart-Cousins told Spectrum News 1 this week: “I think the momentum around what we are trying to do, affordability, obviously, is the key. And we are facing unprecedented times. The federal government attacking us in so many ways, taking away resources.”

Albany, however, cannot legally do as Washington does — which is to heedlessly balloon deficits by printing and borrowing more money. States and cities could ultimately face bond defaults and trouble paying their obligations if their books fall out of balance. And too much taxing is economically counterproductive.

Are state leaders feeling enough urgency to control future costs? It doesn’t seem so.

Fixed pensions are already a big budget burden. But this may be the year that civil service unions, important in political campaigns, win lower retirement ages, reduced employee contributions, and an end to overtime caps on Tier 6 pensions that took effect 14 years ago as a cost-saving measure. Canceling such savings is not advisable, especially now.

Hopefully as the April 1 deadline for the budget nears, state leaders will realize that tough spending choices can’t be waved away no matter how strongly Washington is blamed for our fiscal challenges.