(The Center Square) – New York’s top bean counter is warning about the state’s increasing fiscal instability in a new report that cautions Albany leaders from tapping into the state’s reserves to reduce the growing deficit.
In the report, released Thursday, State Comptroller Tom DiNapoli said the $277 billion state budget signed by Gov. Kathy Hochul two weeks ago amounts to an increase of 7% from the previous fiscal year budget, with spending projected to exceed revenues for the next two years, raising questions about long-term fiscal sustainability.
DiNapoli said while New York’s budget gap continues to grow – hitting an estimated $31.8 billion this month – Hochul and legislative leaders didn’t make a deposit into the state’s so-called ‘rainy day’ fund and tapped $1.3 billion in reserves to help balance the budget. He said the state is facing a tough economic outlook and should be seeking to save more money for a possible downturn.
“The state’s finances remain highly exposed to federal actions and potential economic downturns,” DiNapoli said in a statement “While state spending has increased to fund critical programs, most notably healthcare, education and childcare, total reserves have remained flat, which could put these investments at risk in the future.
DiNapoli said while state leaders have increased the reserve fund substantially in recent years, leaving it flat this budget cycle means its effectiveness could be “diluted as the budget grows, potentially limiting the state’s ability to weather fiscal challenges in the years ahead.”
“Major national and international developments risk affecting New York’s economy, with downstream impacts on tax revenues and fiscal stability,” the comptroller said.
DiNapoli noted that New York budget writers are facing numerous pressures, including reduction in federal support or social safety nets, a “persistent and stubborn” increase in the cost-of-living and increasing local government fiscal needs. Two areas of the budget that saw a record spending increase were Medicaid spending and schools, according to DiNapoli’s report.
Lawmakers responded by pushing through spending increases that include a $5 billion projected increase in state-share Medicaid spending; $1 billion in tax refund checks intended to aid with high utility prices; $944 million more for childcare; and increasing assistance to local governments, DiNapoli pointed out.
HIs report noted that state spending is also increasing at a time when the federal government is shifting more costs onto the state or threatening to pull back, freeze or limit federal support.
“To prevent budget gaps from growing, new recurring spending should be matched with recurring revenues,” DiNapoli wrote. “Apart from decoupling from recently enacted federal tax provisions related to business expenses, no major recurring revenue changes were included in the budget and the extension of corporate franchise tax rates are scheduled to sunset at the end of 2029.”
DiNapoli also noted that the budget also includes “troubling provisions that erode the state comptroller’s independent oversight of state contracts and expenditures” by making fewer transactions subject to a review by his auditors.
He said while the budget signed by Hochul increased discretionary procurement thresholds, these changes “still exempt significant public spending from OSC oversight authority and a competitive procurement process.”
