Executive Summary

 These are challenging times for working New Yorkers. Families across the country feel the pinch of inflation, but in New York inflation runs higher than the national average due to the high cost of housing. The state economy is one of the slowest growing in the nation, and the state labor market has only recently recovered to its pre-pandemic level of employment. High-wage sectors of the economy such as finance and technology continue to grow, but we are losing middle-income jobs and replacing them with low-wage jobs. Both unionization rates and parts of the public sector workforce show long-term declines.

Despite the economic challenges facing working people, the State government is in a strong fiscal position due to rising incomes of the highest earners. A surplus of $3.5 billion is anticipated at the end of this fiscal year, and a surplus of $1.8 billion is anticipated for next fiscal year. The Executive Budget, recognizing this strong fiscal outlook, maintains a steady level of overall spending as a share of the state economy, and, in contrast to past years, does not propose substantial cuts to school aid or Medicaid.

The Executive Budget uses the bulk of this year’s $3.5 billion surplus to fund a $3 billion “Inflation Refund” for 93 percent of taxpayers, supporting $300 checks for individuals making up to $150,000 and $500 checks for married couples making up to $300,000. These payments will have a negligible benefit for most recipients, and the multi-billion surplus ought to be used for more strategic purposes, such as housing investment or paying down the State’s Unemployment Insurance debt to the federal government.

The Executive Budget proposes changes to Foundation Aid, the primary school funding formula, drawing on a recently commissioned study of the formula. The proposed changes maintain the overall level of spending growth, but reallocate $350 million from New York City to other districts. New funding for SUNY and CUNY is limited, but includes a $35 million allocation for a free community college initiative that could serve about 4,700 out of 226,000 students. FPI estimates that an incremental investment of $1.1 billion would be needed to make community college free for all.

In Medicaid, the Executive Budget shows real program growth of 3.7 percent, with a higher rate of growth in the State’s share due to decreasing federal assistance, and maintains the State’s commitment to bailing out the large number of financially-distressed hospitals that serve low-income New Yorkers. But the budget debate over health policy must also recognize that rising private insurance costs create an affordability problem for nearly every New Yorker. Premiums have increased by 75% since 2010, and deductibles have roughly doubled. Policy measures are urgently needed to manage underlying cost growth and hold down premiums across the board.

Housing is the chief affordability challenge for New Yorkers. Housings costs for New York City renters grew 57 percent faster than wages between 2019 and 2023, and New York State falls far behind its neighboring and peer states in producing new housing. Innovative policy measures are available to both increase the production of housing and manage costs, in particular public financing for mixed-income developments in which the State holds an equity interest, thereby ensuring public oversight; these measures must supplement zoning reforms that end the state’s housing shortage.

The Executive Budget makes a few significant missteps in tax policy. It commits to a planned corporate tax cut in 2026 that will permanently cost over $1 billion per year. And it proposes a $1 billion income tax cut that primarily benefits households earning over $150,000 (when the median household income is about $85,000). These tax cuts are particularly bad policy in a moment when all policymakers recognize the need for new revenue sources to fund the MTA’s capital plan. These tax cuts may have the undesirable net effect of marginally lowering taxes statewide, while simultaneously raising taxes on lower-income workers in New York City by a greater margin to fund the MTA.

The most important fiscal concern for state policymakers in this budget cycle is the likely reduction in federal funding under the current presidential administration. New York State expects over $90 billion in federal aid for the next fiscal year, and significant cuts to any of the programs detailed below would pose serious threats to the health and economic stability of working people in the state.

The State must prepare, as part of its budget analysis, realistic contingency plans to bridge federal funding gaps, replace lost revenue, and resist federal policy threats that are at odds with the values of New Yorkers.