October 29, 2024
Following is a summary of the just released 2025 NYS Enacted Budget Financial Plan Mid-Year Update from our government relations team at Reid, McNally and Savage.
10/29/2024
FY 2025 NYS Enacted Budget Financial Plan Mid-Year Update Released
The Mid-Year Update (the “Financial Plan”) to the First Quarterly Update for Fiscal Year (FY) 2025 was released today. Please find a copy of the update linked here.
Financial Plan Overview:
Over the past few years, the State has made significant new investments in services and programs, substantially increasing assistance to schools and health care providers, while expanding and adding funds in nearly every other area of the budget. To protect these investments from a future economic shock or downturn, Rainy Day Reserves have been increased to the highest levels in history. In addition, debt levels remain steady with no growth in debt outstanding over the past decade, historic liquidity levels are delivering high investment returns, new reserves have been established for future costs, and excess resources have been managed to benefit future years and reduce reliance on costly debt.
State finances remain on solid footing with favorable operating results recorded through the first half of FY 2025 and an improved economic outlook. The economy continues to show strength as employment and wage growth exceeds previous forecasts, and inflation moderates. As a result, DOB has increased growth projections for nearly all economic indicators, including employment and income.
Through September 2024, General Fund receipts, including transfers from other funds, were $1.2 billion higher than estimated in the First Quarterly Update, driven mainly by strength in personal income tax, sales tax, and Pass-Through Entity Tax (PTET)3 collections, as well as non-tax receipts. However, business tax collections to date continue to fall below expectations. General Fund disbursements, including transfers to other funds, were nearly $2 billion below the cash flow estimate, with lower spending across many local aid programs and capital projects, inclusive of timing related variances. The net positive operating variance of $3.2 billion contributed to a higher September 2024 ending cash balance of roughly $52 billion in the General Fund.
In view of the improved economic outlook and operational results to date, as well as programmatic experience, implementation of new and expanded services and activities, and other indicators, DOB has revised receipts and spending estimates across several functional areas and financial plan categories in this Mid-Year Update. Receipts have been increased by more than $2 billion annually across all years of the Financial Plan in recognition of continued positive variances in PIT withholding and estimated payments, as well as updated economic indicators. Spending estimates across all years of the financial plan have been revised to reflect upward revisions to estimated Medicaid spending, General Fund support for capital projects spending to avoid costly debt financing, and higher operational costs as agencies continue to restore workforce levels. These increases are partly offset by downward spending revisions across other programs and services, including timing-related adjustments. Higher Medicaid costs are associated with elevated enrollment levels and revised forecasts for utilization and costs, as well as delayed Federal approvals required to effectuate prior year savings initiatives and recoveries. In addition, the revisions include an additional $500 million debt service prepayment in FY 2025, the continuation of the pension prepayment initially executed in FY 2024 and authorized in the FY 2025 Enacted Budget, and the recognition of a $3.2 billion risk in the FY 2027 tax receipts forecast associated with the possibility the Federal government extends or revises the SALT deduction.
In this Financial Plan, DOB is increasing current year General Fund receipts, excluding debt service revisions and the PTET, by roughly $2.1 billion compared to the First Quarterly Update. This increase is comprised of upward revisions of $1.9 billion in tax receipts and $223 million in miscellaneous receipts. Spending through the remainder of the fiscal year is expected to be lower than estimated in the First Quarter Update consistent with operating results to date, however the upward revisions to projected Medicaid spending eclipse most of the expected savings across other programs and services. The combination of these revisions to receipts and disbursements results in $2.4 billion in available resources that will be carried forward through the prepayment of expenses to reduce costs in future years. A summary of the multi-year revisions appears later in this Financial Plan Update.
The cumulative outyear budget gaps are marginally higher than previously estimated and are now projected to total $1 billion in FY 2026, $6.2 billion in FY 2027 and $7.1 billion in FY 2028. These projected gaps, which include Medicaid spending projections that exceed the Global Cap spending allowance by roughly $2.2 billion beginning in FY 2026, are due to spending growth outpacing available resources. The outyear gaps are lower in part due to the use of temporary resources from prior year prepayments and excess fund balances. The structural deficits will need to be addressed in future years.
The Governor will propose a FY 2026 Executive Budget by January 21, 2025, that will include a plan to provide for balanced General Fund operations on a cash basis in FY 2026.