Federal cuts leave New York with $750 million budget gap

State Budget Director Blake Washington painted a grim picture Thursday when he shared that due to Medicaid changes in the federal spending bill signed by President Donald Trump, there would be a $750 million shortfall in the current fiscal year, followed by a $3 billion deficit the following year. The bill also closed a tax loophole on managed care organizations in New York that the state expected to exploit over the next two years to bring in roughly $3.7 billion in revenue. Now, it will only apply to the current fiscal year.

Washington told reporters that while nothing has been decided as of yet, there will assuredly be changes to the state’s fiscal plan to accommodate changes to federally funded social service programs like Medicaid and the Supplemental Nutrition Assistance Program.

“I’ve been here for 20 years. We’ve solved for a $20 billion state operating current law services gap, and it didn’t come without a lot of pain. That was in 2010 with the Great Recession. It was very, very difficult. We solved for gaps during COVID. We’re willing to roll up our sleeves and do what we can to modify and to remedy the actions to sustain current law services,” Washington said. “It just becomes more and more challenging to do so when you’re also facing the threat of another cut.”

He demurred when asked if Gov. Kathy Hochul would raise taxes to meet the funding gaps created by the new federal law. While state lawmakers have steadily pushed for taxes on the wealthy since Hochul has been in office, Hochul has ruled out the measure amid pressure from the business community and fears it could further reduce the state’s already shrinking population.

Washington explained that the situation couldn’t be solved with increased taxes no matter what the size of the shortfalls. “There’s no taxing our way out of this,” he said. The “inflation refund” checks that served as a source of controversy earlier this year, will still go out, costing the state roughly $2 billion.

Now that the cuts are realized, a special session appears likely later this year so the state can amend its budget to reflect the changes in funding. Washington, though, had hope this wouldn’t be necessary.

“I think that everybody in this building knows that there’s going to be some changes in our programming throughout the state budget, and as we get into it jointly, whether it be Medicaid or any other program in the state of New York, I think that refinements are enough,” he said.