With an eye toward outyear budget gaps, Gov. Kathy Hochul unveiled a modest budget proposal on Tuesday, characterized by minimal spending increases that still avoid cuts overall. The $233 billion proposal represents a roughly $6 billion increase compared to her executive budget last year – a balanced number Hochul proudly said avoids tax increases or cuts.
Still, Hochul is already facing criticism for holding the line on her opposition to new taxes, as well as her more austerity-minded budget despite starting the new year fiscal with an unexpected $2.2 billion surplus. Originally, state budget officials had projected a $4.3 billion budget shortfall in October last year. But the state brought in more tax revenue than expected, leading to a more optimistic outlook even as Hochul warned about budget gaps in the upcoming years.
Hochul acknowledged the slowed growth proposed for fiscal year 2025, saying “we can’t spend like there’s no tomorrow because tomorrow always comes.” But she was adamant that smaller increases don’t amount to cuts, even if she expects that some will make the argument. With that expectation, here are some of the biggest budget fights likely to emerge based on Hochul’s executive budget proposal.
Hochul raised eyebrows with a proposal to end the so-called “hold harmless” practice of school aid, which ensures districts never receive less funding than the year before. The governor effectively kept school funding and Foundation Aid flat compared to last year, proposing a 2.4% increase compared to the roughly 7.7% increases seen the past two years. “As much as we may want to, we’re not going to be able to replicate the massive increases of the last two years,” Hochul said in her budget address. In total, she proposed a $825 million increase to school aid, including a $507 million bump to Foundation Aid.
Hochul said that schools with new or high needs will get the majority of school aid increase this year, and asserted that schools that may see an adjustment down will be ones that are already well-funded. “They're sitting on very healthy reserves,” Hochul said of the majority of districts that will see adjustments based on her tweaks to Foundation Aid in the upcoming fiscal year. Others have seen population decreases, according to the governor. “I want to make sure I have the flexibility to take care of our high-need school districts,” Hochul said.
Maintaining and increasing school funding is one of the top priorities for both chambers, and lawmakers are likely to call for more money than the governor is proposing. “This amount will not be enough to offset cost increases that schools across the state are bearing due to inflation,” state Senate New York City Education Committee Chair John Liu said in a statement. “As we enter budget negotiations in the coming weeks, school funding must be increased sufficiently to continue the full funding of Foundation Aid and maintain funding of state-mandated services.”
New York State United Teachers, a politically powerful union, expressed reservations about Hochul’s school aid proposal. “We're concerned that the executive budget proposal includes modifications to the formula to reduce School Aid costs,” NYSUT President Melinda Person said in a statement. “The critical need to consistently support our students and educators should not vary with the fluctuations in our state tax revenue.”
State Senate Majority Leader Andrea Stewart-Cousins avoided directly answering whether she would support eliminating the “hold harmless” policy as proposed by Hochul. “The (Foundation Aid) formula, and how we’ve been funding schools has been an ongoing conversation, and how to make sure that we're no longer owing schools has been what our focus is,” Stewart-Cousins said. “Now going forward, how we continue to sustain good educational support while we get the results is what we're going to talk about.”
Assembly Speaker Carl Heastie also avoided directly weighing in on the governor’s plans for education spending before seeing specific details of her proposal. “State aid is supposed to be needs based, and so we have to see,” Heastie said. He added “I don’t think there has been a bigger champion for education aid than the New York state Assembly,” and that school funding is “something that is really important to us.”
Mayoral control of New York City schools is set to expire again at the end of June, and Hochul has proposed extending it for another four years as part of her budget. It’s one of the major asks from New York City Mayor Eric Adams. She noted that it has been granted to every mayor in the city since 2002, but it has in recent years emerged as a point of contention with lawmakers in the Legislature. In 2022, Hochul originally proposed a four-year extension, but reduced it to two as part of a compromise with the Legislature. Hochul also had proposed the extension as part of her budget, but it was dropped during negotiations and passed later in the legislative session instead.
Liu indicated that he doesn’t support the mayoral control extension as the governor has proposed. “Mayoral control of NYC schools has no fiscal considerations and should not be part of the state budget,” Liu said in a statement. He noted that the state Education Department is concluding a study that will include an analysis of city schools under 20 years of mayoral control, and that any extension should be informed by the study. “It’s simply premature and senseless to lump mayoral control in with the state budget,” Liu said.
Heastie also reiterated his aversion to including policy in the budget when asked about mayoral control. “Y’all know how I feel about policy in the budget,” Heastie said.
Hochul made a point to say that she presented a balanced budget without any new income taxes or taxes on businesses. Since taking office in mid-2021, Hochul has repeatedly said she would hold the line on taxes, and her fiscal year 2025 budget is no different. When asked how she would respond if lawmakers came to the negotiating table demanding tax hikes to create new revenue streams, Hochul said bluntly “I would say no.”
However, polling has shown that a large majority of New Yorkers support increasing taxes on the wealthiest residents, such as increasing income taxes for the highest earners, in order to fund state projects. Many lawmakers have pushed for new and increased taxes on the wealthy and corporations to increase revenue for everything from transportation to the migrant crisis. “We should be taxing the rich so that we can provide every single child in New York State with a sound education starting with universal child care,” state Sen. Jessica Ramos said of Hochul’s adamant opposition to raising taxes. Ramos sponsors one of the bills that makes up the Invest in Our New York Act that would impose new taxes on high earners and corporations. Ramos called Hochul’s proposals last year to increase State University of New York tuition and the subway fare in New York City “taxes by another name,” and ones that would hit average families rather than the wealthiest.
As Hochul sought to cut spending growth, her big focus other than education was Medicaid, which pays for medical care for 39% of state residents. She said that the state spent $1.5 billion more than originally projected on Medicaid costs in the 2024 fiscal year and expressed the need to reign in that spending. Getting Medicaid costs under control has been an ongoing issue for New York governors for years – former Gov. Andrew Cuomo had two different Medicaid Redesign Teams tasked with finding ways to bring down ballooning spending and improve the program. The second of the teams, empowered in the fiscal year 2021 budget, was tasked with finding $2.5 billion in savings. Hochul said the state is trying to find ways to save over $1 billion on Medicaid. This year she has tasked two different panels to come up with recommendations that will include finding ways to improve the state’s Medicaid program, but those will have no impact on the fiscal year 2025.
Last year, the enacted budget included a modest increase to Medicaid reimbursement rates for safety net hospitals and other health care providers, the first increase in 15 years, but health care union 1199 SEIU and hospitals in the state said it didn’t go far enough. This year, they have been calling for the governor and lawmakers to make investments so the state covers the remaining gap in Medicaid reimbursement, which advocates say currently shortchanges safety net hospitals on average about 30% of costs. They wanted Hochul to put $6 billion over several years toward closing the reimbursement rate gap so that hospitals receive the same amount of money for Medicaid services as any other treatment.
The union and the Greater New York Hospital Association expressed disappointment in Hochul’s Medicaid proposals, which sought further recommendations on how to cut costs and make the program more efficient. “Today’s State Budget announcement was an opportunity for the Governor to set a new course,” 1199 President George Gresham and GNYHA President Kenneth Raske said in a statement. “But she did not. It’s no wonder that so many hospitals are in deep financial trouble and critical health indicators are worsening, especially in low-income communities.”
Lawmakers rallied with union members and advocates last week to express their support for increasing the Medicaid reimbursement rate. Along with it being a major shared priority for the state’s largest health care union and hospitals, paying more to providers who accept Medicaid has support among the Democratic conference.
According to Hochul’s office, state Medicaid spending is expected to increase by 10%, to $30.9 billion in fiscal year 2025.
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