July 25, 2025
(Dan Clark, Capitol Confidential, 7/25)
Good afternoon.
The state Division of Budget dropped the first quarterly update to the financial plan for the current state budget. It lays out the state’s finances from April through June and provides a preview of what’s projected to come. There’s good news and bad news, from a fiscal perspective. See link here: NYS DOB Quarterly Budget Update
The Division of Budget is projecting a $3.7 billion gap in the state budget due in 2027. That includes the same $3 billion from the year before and $790 million less in federal revenue for SNAP.
On July 4, 2025, the President signed a bill that substantially alters Federal funding for health care and food security programs and services provided to New Yorkers and amends the Federal tax liability of New York’s residents and businesses. The bill is expected to increase State and local government costs for health care and food security programs beginning January 1, 2026. The impact on the current fiscal year (FY 2026) is projected to be roughly $750 million; however, preliminary cost estimates in future years could be in the range of $3 to $5 billion for State and local governments absent any programmatic, service, coverage, or funding modifications that may be necessary.
The good news is that the general fund (think of it like the state’s main bank account) ended June with a balance $2.7 billion higher than what budget staff had estimated. There are a few reasons for that. Revenue from the pass-through entity tax, a way for certain business owners to deduct more from their federal taxes, was $796 million higher than what was expected at this point of the year.
New York also spent about $2 billion less than expected in the first quarter, but that’s not because of fiscal discipline. It was because certain payments were delayed beyond the end of June. Add that up and you get the $2.7 billion that New York didn’t expect to have. It’s not a surplus; it’s just the result of bureaucracy.
Here’s where we get into the bad news: the state’s balance of all funds, including the general fund, was $944 million lower than expected by the end of June, according to the update. That’s largely due to lower-than-expected funding from the federal government and miscellaneous areas. That was partly offset by higher-than-expected tax revenue.
We had not seen details on what the expectation was in the outyears — and this is just for the state’s expected loss in revenue for Medicaid, the Essential Plan and the Supplemental Nutrition Assistance Program. Other gaps haven’t been measured.
The Division of Budget is projecting a $3.7 billion gap in the state budget due in 2027. That includes the same $3 billion from the year before and $790 million less in federal revenue for SNAP.
But that loss is expected to grow to $4.7 billion one year later, when Hochul and the Legislature negotiate the state budget in 2028.
That includes the expected $3 billion annual decrease in funding for Medicaid and the Essential Plan. But the Division of Budget is projecting a $395 million loss because of new restrictions on taxes for health care providers.
The state is also expecting a $1.1 billion gap in federal funding for SNAP. The federal government has historically funded that program in full but changes are expected to require states to share that cost by the 2028 fiscal year.
The state is also expecting a new $205 million cost to administer that change. Add all that up and you get a $4.7 billion anticipated gap in 2028, which is fiscal year 2029 for the state.
These are all estimates. It’s possible that the state receives more in federal funding than is anticipated.
New York doesn’t have to fill all of the impending gaps in federal funding. The state could make cuts to the Medicaid program to reduce its spending there, making part of the federal cuts moot from a fiscal perspective.
But if Hochul and the Legislature want Medicaid and SNAP to remain as they are now, they’ll have to find $3 billion in new revenue (or cuts elsewhere) in next year’s budget.
The big takeaway for me from the new quarterly update is that, even if they create a new revenue stream to generate $3 billion in next year’s budget, it’s not long before they’ll have to come up with another $1.7 billion.