Governor Hochul’s administration this week urged agency heads to keep their budgets flat next year. It’s the most serious acknowledgement yet of state government’s looming financial shortfall.

A number of factors—namely multiple years of significant spending increases—have New York facing a $10 billion mismatch between revenues and expenses in the fiscal year beginning next April. That’s the largest gap a governor has confronted since the Great Recession, and it comes before costs related to the state’s migrant crisis fully hit the balance sheet.

Holding state agency budgets at current levels, instead of allowing planned increases, is a good first step toward tackling the shortfall. But the move, if fully implemented, would shave just $1 billion—or one-tenth—from the forecast gap.

Agency spending is the third-largest area of state costs after Medicaid and school aid, programs that have swollen since 2020 and that now make up more than half of state spending. State Medicaid spending rose 13 percent this year alone, while school aid (adjusted for inflation) is about 25 percent above where it was a decade ago and is poised to rise more even as public school enrollment has collapsed. 

Hochul is under pressure from socialists and others to both hike taxes and invade the state’s newly developed cash reserves—moves that would erode the state’s tax base and leave it unprepared for an economic downturn. So far, the governor has indicated she wants to close the budget gap without doing either.

Tightening belts inside state agencies, on the other hand, will help Hochul credibly tell others to do the same.

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