NEW YORK (BLOOMBERG) -- New York state’s cumulative three-year budget gap has swelled to $34 billion, rising 25% from Governor Kathy Hochul’s estimate in January as federal funding slows, Comptroller Thomas DiNapoli said.
The projected deficit as a share of total spending would be the biggest since the financial crisis in 2009, DiNapoli said in a report Friday. The shortfall is driven by spending growth in Medicaid and education, and as New York and other states grapple with billions of dollars in cuts to safety-net programs from President Donald Trump’s budget and spending bill.
“This is likely just the beginning; the relationship between the federal government and the states is being restructured, and state governments will be facing drastic reductions in federal aid that could force difficult decisions about state revenue and spending priorities,” DiNapoli said.
Compounding the problem, job growth in New York is slowing, as it is in the rest of the US, DiNapoli said. From January to May, New York employment growth averaged 4,600 jobs monthly, down from 19,100 a month in the same period last year.
New York lawmakers approved a $254 billion budget for fiscal 2026 in May, with spending on Medicaid rising to more than $112 billion, or 44% of the total. The state portion of Medicaid spending rose to $44 billion, while aid to schools increased 4.8% to $37 billion.
Even as New York boosts spending, Hochul’s budget included a more than $2 billion tax cut for the middle class aimed at easing the burden of inflation. But a weaker economy means that both personal income and business tax revenue are forecast to decline from previous fiscal years.
Meanwhile, the deep spending cuts from Trump’s One Big Beautiful Bill could cost New York’s health-care system and budget almost $13 billion per year, Hochul said last month.
“Besides increasing the number of New Yorkers who are uninsured or suffering from food insecurity, the state will also contend with changes made to terminate funding for climate, clean energy and resiliency programs,” DiNapoli said.
The new budget deficit estimate could amplify calls from some Democratic lawmakers for new tax increases. That’s a priority of New York City mayoral candidate Zohran Mamdani, who polls show is currently favored to win November’s general election.
Mamdani, a member of the state Assembly and a democratic socialist, has said he’ll push for an increase in the state’s corporate tax rate and a new tax on millionaires to pay for an ambitious policy agenda, including free bus service and a new free universal childcare program for residents age 6 weeks to 5 years.
Hochul has said she won’t approve any tax hikes in the coming year.
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