Hochul outlines $233 billion state budget proposal

Jan. 16—ALBANY — Gov. Kathleen C. Hochul has outlined her goals for fiscal year 2025, calling for $233 billion in expenditures, a 4.5% increase from last year's $229 billion budget.

In a speech outlining her top-level goals at the state Capitol on Tuesday, Hochul stressed that many of the pandemic-related fiscal aids the state has used to boost spending over the last two years have dried up, and the historic increases in state spending on education in particular could no longer be sustained.

Hochul said she worked to thread the needle between keeping services available and funded and not overextending the state's financial capacity.

"This budget invests in programs and services that New Yorkers rely on, while not spending money we don't have," Hochul said.

On education, Hochul said she is proud to have been able to fully fund foundation aid, the main state funding for public school districts, last year for the first time since it was established in 2006. Last year, foundation aid was boosted by $3 billion, up to $24 billion, and $34.5 billion in total was set aside for all school aid.

Hochul said a similar increase this year is impossible, and she instead put forward a plan that calls for a $921 million increase, 2.4%, in total school aid, including a $507 million increase in foundation aid.

Despite that projected increase, the governor's proposal does not fully fund foundation aid according to the current formulas used to calculate what schools are entitled to. It instead calls for a change to the foundation aid formula, to cut expenditures especially to districts that have already reserved their mandatory maximum in fund balance.

"I'm going to be straight with all you," she said. "As much as we may want to, you're not going to be able to replicate the massive increases of the last two years. No one could have expected the extraordinary jumps in aid to reoccur annually."

Hochul's plan also calls for an end to the "hold harmless," clause of state law that mandates no district in New York receive less money in one year than they did the year before in state aid, essentially locking state support for districts to stay the same or increase. That change could lead to some districts seeing less state support year to year.

The New York State Teachers Association was quick to raise concerns over this plan.

"We're concerned that the executive budget proposal includes modifications to the formula to reduce School Aid costs," said union president Melinda Person. "The critical need to consistently support our students and educators should not vary with the fluctuations in our state tax revenue."

Hochul said that part of the problem is shrinking demographics, New York is aging and there are fewer young people now. There are 10% fewer students enrolled in New York's public schools than a decade ago, while state, federal and local property tax support for districts has only increased at the same time. New York now spends more than $26,000 per student in the public system per year, 85% more than the national average of just about $14,300.

"It's common sense to ensure that schools are getting the appropriate money based on their enrollment today, compared to what they were a decade and a half ago," she said.

Hochul said the other end of the demographic shift, where more New Yorkers are entering their senior years and needing medical care than ever before, is stressing another area of the state's finances — Medicaid.

"Our Medicaid spending exceeds our projections this year by about $1.5 billion," she said.

Although the federal waivers that kept Medicaid recipients on the program without having to re-register or re-attest to their need expired last year, Hochul said 200,000 more people than expected remained on the program, proving their eligibility. That costs an extra $400 million a year.

On top of that, Hochul said the state is awaiting repayment of $1.5 billion in bridge loans provided to essential, financially distressed hospitals, about 33% of the hospitals in New York. She said although the federal government has provided the funding necessary to keep those hospitals viable, many have not repaid those loans yet.

"We're providing current year financial plan resources to manage this, but it just continues the growth of our Medicaid obligations," Hochul said.

She said she would call together two panels to study what solutions may exist for this problem, the New York State Commission for the Future of Health Care and the New York State Master Plan for Aging, but said those panels will not have any recommendations by the time the state budget is due to be passed in late spring.

An issue that some criticized Hochul for avoiding during her agenda-setting State of the State address a year ago got more attention on Tuesday — migrants. Hochul said the state has taken in more than 69,000 people seeking asylum, and last year dedicated $1.9 billion in state funding to help process and house those migrants. This year, the state will dedicate $2.4 billion, with $500 million coming from dividends on investments of reserve cash the state has made.

The governor said the issue is temporary in nature, although she said the same thing last year. Hochul said she is visiting Washington, D.C., on Friday, and plans to ask the Biden administration for policy changes and support for New York as it tries to house the tens of thousands of mostly Spanish-speaking immigrants who crossed the southern border and were bused to New York City.

Hochul's housing plan saw some changes outlined in this budget address. While last year, the governor supported a plan that would have required many localities change zoning and housing policies or lose control over their right to approve projects themselves. That proposal died in the state legislature, and Hochul said she will try a different, more reward-focused method this year.

"I heard loud and clear from my friends in the legislature that they believe more in carrots and not sticks," she said. "Let's do that too. Incentivize housing growth in the suburbs, and in particular transit-oriented development."

Hochul's plan includes something she's already undertaken, putting $650 million in discretionary funds like the Downtown Revitalization Initiative, NY Forward and other grant programs behind a wall. To access those programs, Hochul wants applicant communities to become "pro-housing" certified by the state department of Homes and Community Renewal, demonstrating that their regulations and local policies are in line with housing development goals.

Hochul said housing is a key issue this year, something that needs to be done to help address a myriad of issues facing the state right now, from homelessness to affordability to the growing gap apparent in state funding. Hochul said outmigration and the loss of residents cut about $6 billion in potential tax receipts from the state budget this year.

Hochul's proposal also calls for the closure of five prisons across the state, but does not provide any metrics for what facilities should be considered.

The governor's budget director Blake G. Washington said in a press conference on Tuesday night that the ultimate decision will be made by the state Department of Corrections and Community Supervision, but a number of characteristics being considered include the condition of the facilities, neighboring facilities that can take on employees from the closed prisons, and where the people incarcerated at those prisons are from.

"Is there a way you can get (the incarcerated people) a little closer to the people they know on the outside," Washington said. "It's a calculus, that is something the commissioner (of DOCCS) would undertake."

Washington said the goal is establishing a safe and efficient prison system. He said there are safety concerns when a prison is still in use but underpopulated, as well as the obvious costs associated with underutilized prisons.

That raised concerns for upstate politicians, like state Sen. Daniel G. Stec, R-Queensbury, who said a prison closure in his north country district would have severe negative impacts.

"If this comes to fruition, it could potentially have a detrimental impact on our region," Stec said.

It got the attention of Republican leadership in the legislature as well. Sen. Rob G. Ortt II, R-North Tonawanda, said the prison closures and other aspects of Hochul's plan seem focused on New York City and liberal priorities.

"More potential prison closures, changes in school funding, and a lack of significant investment in upstate roads and bridges is alarming," Ortt said. "This budget, while crafted by a western New York Governor, seems to elevate a New York City driven agenda, while the rest of the state is left to deal with problems created by bad policies from downstate Democrats"

Hochul's spending plan this year seems to close the $4.3 billion deficit that Albany lawmakers have been talking about since October, but state Comptroller Thomas P. DiNapoli said on Tuesday afternoon that the state is still facing a $20 billion gap through fiscal year 2027-28.

"It is important that actions are taken to improve the long-term stability of the state's finances, while ensuring adequate funding for our most important needs," DiNapoli said.

"I remain concerned about the state's debt burden, one of the highest in the nation and which continues to grow" he added.

Stec said he has the same concerns, and isn't confident that the governor's spending plan this year does anything meaningful to address it.

"Proposed spending is $233 billion, a 4.5% increase over last year's record-setting budget," he said. "Combined with an acknowledged $6 billion in lost tax receipts due to our state's ongoing outmigration woes and despite some fuzzy math that shows a budget surplus instead of an anticipated deficit, this is ultimately a costly proposal that does nothing to alleviate New York's long-term financial difficulties and right the ship going forward."

Stec was especially critical of Hochul's plan to spend $2.4 billion on the migrant crisis downstate, which he said has been poorly handled by Hochul, New York City Mayor Eric Adams and the Biden administration.

"Our taxpayers continue to bear the brunt of this," he said. "I'm particularly concerned by the fact that $500 million of this is coming from the state's reserve fund. This is aid that should be going to legal residents and taxpayers."

Stec said he was pleased by certain aspects of Hochul's proposal, though, like her call to use underutilized state-owned lands and facilities like SUNY campuses and closed correctional facilities to build up housing stock.

Assemblyman Scott A. Gray, R-Watertown, echoed those concerns over the size of the budget and the fiscal stability of New York.

"While it is important to meet the needs of our state, we must ensure that spending remains responsible and sustainable," he said. "The budget has grown from $220 billion in 2023 to $233 billion in 2025, a worrisome trend."

Gray said state expenditures on fighting crime are important, but the focus that officials have had on gun regulations is concerning.

"I am particularly concerned about the continued obsession with guns and infringing on people's rights, which I believe needs careful consideration and balanced action to obtain crime reduction," Gray said. "Criminals could care less about the public policy we put in place."

Sen. Mark C. Walczyk, R-Watertown, said the proposal from the governor was out of line with the agenda she seemed to put forward last week, namely because it calls for continued spending increases.

"The Governor wants to close more prisons and continue her soft on crime stance," he said. "She wants to keep throwing your tax dollars at 'affordable housing,' while making building new or renting more expensive. She's proposed cutting rural school funding while sending $2.4 billion to the illegal immigrants sent to sanctuary cities."

Assemblymen Kenneth D. Blankenbush, R-Black River, said the additional spending Hochul is prescribing is unacceptable and out of touch with New Yorkers' needs.

"Rather than addressing the concerns of taxpayers, she is having them foot a $233 billion bill for her progressive policies," he said. "This is a $4 billion increase from last year when we are approaching a fiscal cliff in the next two years, resulting in a $36.4 billion gap. There has been no accountability for cutting our costs, just ways to spend more to drive New Yorkers out."

Hochul's presentation was the first formal step in the annual state budget process, setting her agenda for negotiations with the state legislature in the coming months. The bills formally laying out Hochul's plans were introduced in the state legislature late Tuesday afternoon.