The state Legislature approved the last of nine budget bills Thursday evening, 38 days after the start of the fiscal year. Here are some highlights of the fiscal impact of final spending plan:

Top lines

The state-funded portion of the new budget, at $146 billion, is increasing by $12.6 billion from last year, which is $2.2 billion more than Governor Hochul initially proposed, according to a financial plan distributed by the Senate leadership.

That’s an increase of 9.5 percent, which is four times the current rate of inflation.

The “all funds” budget, including federal aid, totals $254.4 billion, an increase of 4.5 percent or roughly double the inflation rate.

These totals do not seem to include a last-minute allocation of $7 billion to pay off a debt in the unemployment insurance fund, discussed further below.

The enacted spending plan assumes state tax revenues will increase 6.5 percent in the year ahead, compared to the 4.1 percent assumption in Hochul’s proposal from January.

Lawmakers agreed to bump up that estimate in spite of significant threats to the state’s fiscal outlook that have emerged in the past few months – including President Trump’s tariff actions, which have jolted the stock market and raised concern about a recession, and plans in Congress to constrain federal Medicaid spending, which could cost the state billion in future funding.

Health care

Medicaid – a health plan for the lower income and disabled that is jointly financed by the federal, state and local governments – accounts for most of this year’s new spending.

Hochul initially proposed to boost the state share of the program by $6.4 billion or 17 percent, even as enrollment is on the decline. The Legislature appears to have added roughly $600 million to that amount, including an addition of $500 million in funding for “distressed” hospitals. 

As a result, the enacted budget hikes the state share to almost $45 billion, an increase of 18.6 percent. That line item has cumulatively risen 62% over Hochul’s four budgets, even though enrollment has been falling for the past two years. That compares to a 57 percent increase over Governor Andrew Cuomo’s 11 years in office.

School aid

The new budget increases state aid to public schools by $1.7 billion or 4.9 percent, to a new annual total of $37.6 billion. 

With enrollment stagnant or declining in much of New York, the latest budget is sure to balloon what is already the nation’s highest per-pupil spending.

Taxes

Governor Hochul is touting a number of tax relief measures in the new budget, but the package also increases a tax on downstate payrolls and enacts a five-year extension of a pandemic-era income-tax hike on the highest earners.

Child tax credit: Families are to receive credits worth up to $1,000 per child under 4, and up to $350 per child from 4 to 17 (with the latter amount rising to $500 in 2026). These credits are reduced for families with adjusted gross incomes above a certain threshold – $110,000 for married filing jointly, $75,000 for heads of households and $55,000 for married filing separately.

The state’s current child tax credit of one-third of the federal credit or $100 per child, whichever is greater.

“Inflation refund checks”: Hochul says these one-time rebates will be worth an estimated $2 billion to 8 million taxpayers. Her press release summarized the payouts this way:

Joint tax filers with income up to $150,000 will receive a $400 check, and joint filers with income over $150,000 but no greater than $300,000 will receive a $300 check. Single tax filers with income up to $75,000 will receive a $200 check, and single filers with incomes over $75,000 but no greater than $150,000 will receive a $150 check.

Income tax changes: Elevated tax rates on the incomes, adopted on a temporary basis in 2021, will be extended an additional five years through 2032. Affecting taxable incomes above $2.2 million for married couples filing jointly, these rates are the second-highest in the U.S., behind California, and generate about $5 billion a year in revenue.

At the same time, the budget trims the tax rates for the bottom five brackets – ranging up to taxable income of $323,000 for married couples filing jointly – by two-tenths of a percentage point each over the next two years. This will save as much as $650 per year for a family at the top of the affected range.

MTA payroll tax: An existing payroll tax on covering employers in New York City and seven surrounding counties will be hiked for companies with annual payrolls over $10 million but reduced or left unchanged for smaller companies. This is expected to generate a net increase of $1.4 billion in revenue, which the Metropolitan Transportation Authority can use to finance a portion of its capital plan.

Film and television production tax credit: The governor and Legislature agreed to expand this subsidy from $700 million to $800 million per year. Previously limited to offsetting “below the line” costs such as support personnel and technicians, the credit now also covers a portion or “above the line” costs such as salaries of directors and performers.

This expansion was adopted in spite of the findings of an independent state-commissioned study, which found that the program “does not provide a positive return to the state,” generating just 31 cents in direct and indirect revenues for every dollar the state pays producers.

Unemployment bailout

A last-minute addition to the budget allocates $7 billion to pay off a debt in the state’s unemployment insurance fund.

The debt was incurred during the pandemic when the federal government expanded benefits and eligibility to mitigate the impact of widespread job losses.

The pay off this obligation, the state is dipping into reserve funds that have ballooned to unprecedented levels – largely due to unspent emergency aid received from Washington during the Covid-19 crisis.

Without the state’s intervention, employers faced would have faced an increase in unemployment costs that might have discouraged hiring and diminished their ability to increase pay.

It will be interesting to see how state budget officials account for this unusually large, one-time payment. Senate financial plan shows a $7 billion reduction in the state’s cash reserves, but does not appear to include that amount in its tally of state expenditures.

Risks ahead

Lawmakers approved an unusually large increase in spending despite growing risks to the state’s economic outlook.

These include the ripple effects of President Trump’s tariff actions, which have caused slide prices and raised the risk of an economic recession later this year.

Meanwhile, Congress is debating budget bills that could significantly reduce the future flow of federal Medicaid funding to the state, and the president take executive actions that, by Hochul’s estimate, have already cost New York $1.3 billion.

Hochul and Legislature have said that their budget does not attempt to hedge against these threats. Instead, they have said they will return to Albany to cut spending later in the year as necessary.