Hochul’s biggest failure in her budget deal with NY lawmakers

As part of her budget deal, Gov. Kathy Hochul managed to get lawmakers to agree to various reasonable demands unrelated to how much state government spends.

The governor was pushing back against personal-injury lawyers, environmentalists and NIMBY activists who’d made it tougher for New Yorkers to afford auto insurance, energy and housing, respectively.

Members of the Senate and Assembly haven’t worried enough about staged auto accidents, rolling blackouts or housing scarcity, so Hochul did.

If anything, she should’ve prosecuted a fiercer public case against affordability’s enemies and their Albany enablers.

But as for the actual budget — i.e., the state’s financial strategy for coming years?

That’s another story.

Hochul essentially put state spending on autopilot when she issued her proposal in January, allowing already-bloated programs to swell further.

Wall Street had a better-than-expected 2025, so more tax revenue than forecast rolled into state coffers.

That allowed Hochul to avoid economizing seemingly anywhere.

Most of the budget now goes to just two areas: New York’s costliest-in-the-nation Medicaid program and aid for its costliest-in-the-nation school districts.

Both have continued growing: Lawmakers approved a 12% hike in the state’s portion of Medicaid spending and a 5% rise for schools.

The Citizens Budget Commission, whose proprietary decoder ring lets them see through Albany’s budget gimmicks and accounting tricks, warned that the core of state spending was up nearly 10%, more than double last year’s already-high inflation rate.

When the dust settled, the budget’s theme, if anything, was “never say nay.”

Hochul and state lawmakers gave retroactive pension increases to the state’s public-employee unions, which will increase state and local costs more than $500 million annually.

They offered extra aid to ease fiscal distress in New York City, Buffalo, Albany, Yonkers’ public schools and elsewhere, so they too could avoid economizing (or, as Mayor Zohran Mamdani would bemoan nearly any spending reduction, suffering “austerity”).

A billion dollars in “energy rebate” checks are headed to voters’ mailboxes before Election Day. And so on.

As the budget was being passed, Hochul and lawmakers alike said the plan covered $269 billion in spending, including expenses funded with federal aid.

That’s a striking amount, twice what it was just 13 years ago.

Republicans gave their rote, insincere complaints about the budget’s size, even though they’ve attacked Hochul for trimming some of the most wasteful state programs and not spending more on others.

Yet the price tag ended up even higher, at $277 billion, after Hochul administration wonks accounted for more expected federal aid and other changes.

Even if the good times keep rolling, officials say, come January the governor will need to address a $6 billion (and growing) mismatch between annual revenues and expenses.

And that assumes roaring capital gains and low unemployment continue.

Two big problems: First, tax receipts can stop growing, and even shrink, if financial markets hit choppy waters.

Hochul to her credit has increased the state’s cash reserves, but she’s also left the state more reliant than ever on taxes coming from a narrow sliver of high earners.

Those tax payments can dry up rapidly in a bear market.

Albany still risks needing to make substantial cuts or impose economically destructive tax increases, or both, in a deep or sustained downturn.

Congress dulled New York’s fiscal pain during the Great Recession and the pandemic with a deluge of borrowed money, especially for the public schools where teachers unions often have a greater say over operations than the elected school boards.

But that’s the other big assumption that’s crumbling: The federal government itself is on a collision course with fiscal reality.

Congress last year collected just 75 cents for every dollar it spent.

After more than two decades of deficit spending, interest on the national debt alone is expected to top $1 trillion this year.

Put another way, the first 19 cents of every dollar the feds get from any source — taxes, tariffs, everything in between — will go out the door to service debt payments, which will keep on growing.

Albany is counting on spending at least $88 billion in federal funds, mostly for its uniquely large Medicaid program, in each budget between now and 2030.

New York shouldn’t just assume it’ll get another federal bailout if necessary.

It should be economizing, today, in preparation for a possible drop in state tax receipts and, longer-term, for the guaranteed decline in federal aid.

Two years ago Hochul warned lawmakers they couldn’t spend like there’s no tomorrow “because tomorrow always comes.”

Whether tomorrow arrives first in New York or in Washington, Albany must be ready.

Ken Girardin is a fellow at the Manhattan Institute.