The FY 2024 state budget proposal unveiled today by Governor Hochul would stay on the course she set last year — raising spending to unsustainable levels, pointing towards deep holes for the future.
Adjusting for surplus-funded debt service prepayments (which distort the bottom line), Hochul would raise the state operating funds budget from $121 billion in FY 2023 to more than $128 billion in the year that begins April 1, an increase of 6.1 percent. The $7.5 billion in total added disbursements would include a combined increase of about $6 billion in the budget’s two largest categories, school aid (up 9.8 percent) and Medicaid (up 9.3 percent, not counting the federal share).
Across the next four fiscal years, through FY 2027, total state operating funds spending net of debt service adjustments would increase by more than $26 billion (24 percent) even while revenues increase by a net of just $3.8 billion, including a dip next year, and reflecting a downward reduction of $21 billion from tax levels previously projected for FYs 2025 through 2027.
Obviously, these numbers don’t add up to a balanced budget. Yet balanced it will be — for next year, at least — thanks to the unprecedented surpluses generated by a combination of federal pandemic relief aid and strong tax receipts across the last three years. The surpluses amassed at the start of the pandemic period are expected to push the state’s total budget reserves to $19.5 billion by the end of the current fiscal year. However, projected budget gaps from FYs 2025 through 2027 total even more: $22 billion. Thus, barring an increase in projected underlying revenues, closing the projected budget gaps will require Hochul and the Legislature to cut spending, raise taxes, or totally deplete reserves — or some combination of all three.
Revenues
- The budget would increase state taxes by at least $1.6 billion, including $810 million a year from an extension of the 2021 hike in the corporate franchise tax rate and another $800 million from an increase in the payroll mobility tax on employers in the 12-county Metropolitan Commuter Transportation District.
- Even while increasing the state’s general tax on incorporated businesses, Hochul’s budget would extend New York’s largest corporate tax subsidy, the Film Tax Credit, for five more years, to 2030. The amount allocated to the subsidy would increase from $420 million to $700 million.
Debt
The Capital Projects budget reflects a big downward adjustment in the previously projected amount of outstanding state-related debt at the end of FY 2023, from $68 billion to $58 billion. However, as shown below, the rate of increase over the next five years would be steeper, ultimately $89 billion in FY 2028.
The projected debt path adds credence to state Comptroller Thomas DiNapoli’s call on Tuesday for a constitutional amendment to cap debt in the future.
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