(Bloomberg) -- New York State faces a cumulative three-year budget gap of $13.9 billion, a decline of more than $6 billion from Governor Kathy Hochul’s estimate in February, as a stronger national economy and wage growth boosts tax receipts, state Comptroller Thomas DiNapoli said.
Still, the state’s top fiscal monitor said lawmakers need to better align spending with revenue, boost the state’s economic competitiveness and improve service delivery.
“With the state in a relatively stable position, now is the time to be strategic in managing the budget to better prepare for upcoming fiscal challenges and ensure long-term success,” DiNapoli said in a news release accompanying an analysis of the state budget.
New York lawmakers approved a $237 billion budget for fiscal 2025 in April, boosting education funding by $1.4 billion despite a 231,000 decline in student enrollment over the last decade. Spending on Medicaid, the joint state-federal health care program for the poor will decline by about $630 million this year, but grow by about $9 billion over the next three.
The state needs to put spending on schools and healthcare, which account for more than 50% of the budget, on a sustainable path, DiNapoli said.
New York has regained all the jobs lost at the beginning of the Covid-19 pandemic in early 2020 and wages and personal income are forecast to accelerate, DiNapoli said. However, New York’s economy badly lags the nation, growing 0.7% in 2023 compared with 2.5% for the US.
DiNapoli warned that a economic slowdown could lead to increased demand for government services, potentially widening budget gaps. The state has $21.6 billion of reserves, to cushion an unexpected increase in state spending or decline in revenue from a slowing economy.
New York’s high taxes may be pushing residents out of the state, providing little wiggle room to raise more revenue during an economic slowdown, DiNapoli said. New York’s population has declined by more than 631,000 between 2020 and 2023, the largest population decline of any state, DiNapoli said.
Federal tax cuts are set to expire at the end of 2024, while an income tax surcharge on the state’s wealthiest taxpayers is set to expire at the end of 2027.
“With a tax burden among the highest in the nation, New York policymakers will need to carefully evaluate the combined impact of looming federal and state decisions to ensure the state’s tax revenue are both adequate for long-term fiscal stability and reasonable to ensure economic competitiveness,” DiNapoli said.
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