New York Facing $34 Billion Budget Gap in Wake of Federal Spending Cuts

New York State’s budget deficit grew by $7 billion since the start of the year, bringing the state’s cumulative three-year budget gap to $34.3 billion, a report from the New York State Comptroller’s Office found.

Those deficit increases bring the state’s budget gaps as a share of spending to levels not seen since the 2008 global financial crisis.

The Comptroller’s Office attributed the state’s worsening financial picture to a slowing economy, spending growth and “drastic” reductions in federal spending signed into law by President Donald Trump last month.

“Like other states, New York now faces a new crisis it has to overcome: the federal reconciliation bill is likely just the beginning of what is intended to be a fundamental restructuring of the relationship between the federal government and the states,” Comptroller Tom DiNapoli, a Democrat, wrote in the report’s foreword. “State governments will be challenged to navigate what could amount to drastic reductions in federal aid, forcing difficult decisions… across all areas of the State budget.”

The state’s Executive Financial Plan estimated that the newly adopted federal budget would create a $750 million impact on New York, with impacts ranging from $3 billion to $3.4 billion in future fiscal years. The Comptroller’s Office predicted that the cuts enshrined in the Big Beautiful Bill would increase the number of New Yorkers who are insured or suffering from food insecurity and increase long-term energy costs by defunding climate and clean energy projects.

DiNapoli had previously criticized Gov. Kathy Hochul’s administration for not doing enough to prepare for potential federal funding cuts in the last budget cycle.

“Could there have been the opportunity here to have built another kind of contingency? I don’t have a number to give you, because there’s a lot of uncertainty here, but I would have thought it might have been a smarter strategy to have another kind of reserve built in to try to buffer some of what we think may be coming out of Washington,” DiNapoli told the New York Public News Network in February.

School aid and Medicaid expenses, already two of the state’s largest areas of spending, have grown the fastest over the past 10 years. Between fiscal year 2016 and fiscal year 2026, Medicaid spending is projected to grow nearly 120% and school aid to grow by 58.7%, compared to overall spending growth by 55%.

The widening budget deficit comes as the state’s debt burden is projected to increase by billions of dollars every year, giving New York one of the highest debt burdens of any state in the country. The report projected that total state-supported debt outstanding would grow from $55.9 billion to $95.1 billion over the next five years, which would put the state just $500 million below its debt cap by fiscal year 2030.

The report attributed that debt growth to the state’s “overreliance” on bonds and “backdoor borrowing through public authorities” to finance infrastructure projects. Approaching the state’s debt limit would delay future projects and limit the state’s ability to maintain existing infrastructure.

“These are going to be difficult times ahead, but New York has gone through difficult times before and, in many cases, has come out stronger,” DiNapoli wrote in the report’s foreword. “With careful consideration, prudent planning, and action, I am confident that we can overcome these challenges, just as we always have.”

Story by Grant Ashley/New York Public News Network

Image: President Donald Trump’s Big Beautiful Bill includes an estimated $1.4 trillion in cuts to federal spending. The New York State Comptroller’s Office estimates the bill will have a more than $3 billion impact on New York State in future fiscal years. (Credit: The White House)