Gov. Kathy Hochul and Mayor Eric Adams are approaching their budget agendas as if the 2024 election didn’t happen.
But the victory of Donald Trump in the presidential race and looming Republican control of Congress seem likely to give them migraines, with enormous risks for New Yorkers who depend on government resources to educate their kids, provide health care and even inspect building sites.
The New York leaders’ approach may be understandable, in an environment of tense uncertainty.
“City and state budget makers are in a tough place because they don’t know what will happen, what policies will be implemented and what impact that would have on the city’s economy, tax revenues and federal aid,” said Ana Champeny, director of research for the fiscal watchdog Citizens Budget Commission.
In a November budget update, Hochul’s administration announced that tax receipts for the current fiscal year, which ends March 31, were $2 billion higher than expected — and that the projected budget deficit for the 2025 fiscal year has been slashed to $1 billion.
Adams also this month announced that revenues for the current fiscal year, ending June 30, are now expected to be higher than projected and expenses for sheltering migrants lower than estimated. He increased the current budget by $3 billion to $115 billion.
Adams’ November budget modification added 1,600 new police officers, $467 million into a cash-assistance program that helps low-income New Yorkers pay for groceries and other bills, and $115 million into the city’s rental-assistance program.
Hochul even promised to find $1 billion in next year’s budget for city housing programs, helping to seal the deal that paves the way for Adams’ City of Yes rezoning to spur more construction.
But a focus on now could leave the state and city with big problems later, since Trump and Republicans in Congress have promised to slash federal spending. Possible targets include funding passed down to the state and city for government programs and services.
The city’s current budget includes $8 billion in federal aid, according to Brad Lander, city comptroller and a candidate for mayor. The money is used for crucial programs that include education, cash assistance, health care and child care.
The money also funds some less obvious functions. That includes community development block grants from the U.S. Department of Housing and Urban Development fund housing code inspectors, apartment repairs and a good share of the staff at the department of city planning, notes Rachel Fee, a former city housing official who is now executive director of the New York City Housing Conference.
The city has also won more than $2 billion in commitments from the infrastructure program launched by President Joe Biden, money Republicans might seek to recapture.
Medicaid and More
The state dependence on federal money is far greater — about $85 billion, a little more than a third of total spending of $239 billion. Most of the money goes to Medicaid — New York’s program is the most expensive in the country on a per capita basis — and education. Those two areas are in the Republicans’ crosshairs for reductions.
Since the city also depends on state aid, pressure on state budgets historically leads to reductions in aid to local governments. One example: while the state required local governments to pay a portion of the Medicaid costs, it capped that number in recent budgets, saving the city about $5 billion a year. If the state winds up with a big hole in its Medicaid budget, it might seek to force the city to cover some of it.
The city and state budgets are not the only ones at risk. Federal aid accounts for $317 million or 7% of the annual budget of the public City University of New York, where 57% of students are receiving federal Pell grants worth $622 million a year. And budget-watchers are still calculating the total exposure for the Metropolitan Transportation Authority and New York City Housing Authority, which both rely heavily on federal funding.
Some of the local officials dependent on federal aid are holding out hope that Republicans in Congress won’t go along with sharp reductions in spending, in a replay of what happened at the start of the first Trump presidency in 2017 and 2018 when the GOP also controlled Congress.
“I guarantee that the representatives and senators from all those red states are supportive of their local institutions,” said CUNY Chancellor Félix V. Matos Rodríguez.
When any cuts would come down is also uncertain. There is some talk in Washington about passing a budget in the early spring. More likely that will come later in the year — after the state budget is passed around April 1 and the city’s by June 30.
But members of the city’s congressional delegation are resigned to see reductions in money coming to New York.
“We are committed to bringing as much money as we can, but there are limits to what we can do,” Rep. Ritchie Torres (D-The Bronx) said at a recent breakfast held by the Citizens Budget Commission.
Some progressive Democrats are already calling for the state to step in to fill any holes.
“We need more housing, affordable child care, better and expanded public transit across the state, lower utility and medical bills, and higher wages. We need the state to help local governments and school districts to reduce upward pressure on property taxes,” state Sen. Liz Krueger (D-Manhattan) wrote in an op-ed in the Daily News. “Bold action will cost money, but the cost of inaction is far greater.”
She called for raising taxes on “the very rich and large corporations.”
One hope is that Trump and the Republicans will deliver on their pledge to repeal the $10,000 cap on federal deductions for state and local taxes. If lifted, experts estimate New Yorkers would save $19 billion a year on the income taxes they pay Washington. Some have suggested privately that the state could lay claim to some of that money to offset any reductions in aid.
However, the cost of restoring full deductibility is $1 trillion over years, a cost simply too high to make federal budget math work, noted Torres at the CBC breakfast, suggesting that an increase in the cap to, say, $20,000 is more likely.
Such a move would benefit upper-middle-income taxpayers who pay city income taxes or suburbanities who own homes and face stiff property tax bills. It would not result in a windfall for the wealthiest residents of New York State, where people with $1 million or more income pay 40% of all the income taxes collected.
The city comptroller says the math simply won’t work to offset the cuts.
“There would not be a way for the city to fill in all the cuts we are at risk of having,” said Lander. “There is no way the city and state could do that together.”
