State comptroller sees need for more reserves in Hochul's budget proposal

One day before the Trump administration unveiled plans to pause federal funding to states, State Comptroller Thomas DiNapoli raised concern that New York was “kind of going on a wing and a prayer” to prepare itself financially for the potential slashing of federal aid. New York State Comptroller Thomas DiNapoli said he would be more comfortable with a bigger buffer in the state budget. In an hourlong meeting Monday with The Buffalo News editorial board, the state’s chief fiscal officer said the state’s revenue position is strong at the moment but repeatedly expressed concern about New York’s long-term ability to financially prepare itself for increasing costs of Medicaid, education and economic uncertainties, such as money from the federal government.

If the state had more of a buffer beyond its existing reserves, DiNapoli said, he would be more comfortable. “Probably less about the short-term ..



. but more in terms of what does it mean two years down the road? Three years?” DiNapoli said. “We don’t want get to a point where they’re going to have to then backtrack on commitments that are being made now.

” On Jan. 21, when Gov. Kathy Hochul proposed her $252 billion executive budget for 2026, officials noted the state’s 8% increase in revenue and a budget surplus of $5.

3 billion. Hochul proposed plans to cut the tax rates for the middle class over two years to reach $1 billion in relief; expansion of child tax credits of up to $1,000 per infant and toddler and up to $500 for older children; and proposed inflation rebates of $300 to single taxpayers who annually make up to $150,000 and $500 to joint-filing taxpayers who earn up to $300,000. DiNapoli said at first blush, it was tough to argue from a policy perspective with Hochul’s focus on affordability issues and other priorities.

And the comptroller credited Hochul and legislative leaders for increasing state reserves to a higher level than ever before. But he warned that those reserves should be safeguarded for a “true financial emergency” such as was experienced during the coronavirus pandemic or Great Recession, not for the loss of $5 billion in federal Medicaid funding. DiNapoli factored in the likelihood that the final budget will include more spending, and that the Trump administration’s positions could financially hurt New York.

“That’s where I’m concerned that we’re kind of going on a wing and a prayer that it’s not going to really be all that bad, or that other revenues will come in that will offset any loss of revenue,” DiNapoli said. “I’m not confident given how aggressively (Trump) is moving to implement some of the things that potentially will hurt us.” After the governor’s budget presentation, Hochul defended her spending plan.

“This is a balanced budget. There’s no income tax increases and we have record reserves,” she said. “So, I have to factor all that into whether or not we’re going to be able to increase spending.

If those three facts were not true, there’d be a different dynamic, but we have benefited from a better, healthier economic forecast but also, the tax receipts are up from Wall Street, which is something we pay attention to. “A year ago, we had a different picture. Three years ago, we were looking at the possibility of a recession.

So a lot has changed, so we’re always adapting to making sure we’re meeting the needs of New Yorkers, and one loud cry we heard this year was, ‘We’re getting crushed by the high cost of living here, can you do something to help?’” On Tuesday – after DiNapoli spoke with The News – the Trump administration announced it was planning to pause federal funding, which prompted State Attorney General Letitia James and the attorneys general of California, Illinois, Massachusetts, New Jersey and Rhode Island to sue the Trump administration. During an appearance in Schenectady, Hochul told reporters she sought clarity on what the Trump order looked like and covered. She was “concerned about a lot of our funding sources,” she said, and would ask Republican members of Congress to push to safeguard the money.

“The one thing we’re not going to do is panic,” Hochul said. The Citizens Budget Commission, a nonprofit fiscal watchdog, said Hochul’s budget proposal is $100 billion more than it was 10 years ago. “When you look at the level of spending, there’s a fairly large increase in spending,” DiNapoli said.

The budget includes $3 billion to pay for the rebates, which if approved will go to 8.6 million New Yorkers. That would include roughly 620,000 households in Erie, Niagara, Chautauqua, Cattaraugus and Allegany counties and 540,000 households in the Finger Lakes region, including the counties of Wyoming, Orleans and Genesee.

“There are a lot of things you could do with $3 billion that might have more of an impact,” DiNapoli said. “Is that going to make a difference? If you’re someone who is really hurting, maybe it will make a difference.” DiNapoli said he believes Hochul is trying to show that she understands people are hurting economically.

He suggested that the money might have made a larger and longer difference being spent toward child care or on the school aid formula. “I personally think it’s a reasonable question,” DiNapoli said. “When this kind of stuff has been done in the past .

.. I never thought it had much of an impact, even politically.

” DiNapoli said he thought the middle-class tax cuts would be more impactful than the rebates. He noted that Hochul also plans to increase revenue, in part, by extending personal income tax surcharges on New York’s top earners through 2032. According to DiNapoli, the top earners represent about 1.

6% of personal income taxpayers but represent about 45% of the state’s personal income tax revenue. “So this argument that, if we’re taxing people out of the state it’s going to hurt all of us, there is some validity to that,” DiNapoli said, while stressing that he believes the wealthiest should pay their fair share of taxes. During the pandemic, he noted, many New Yorkers changed their residence status.

He said that has become less of a problem but that the state still needs to be concerned with the loss of higher salary taxpayers. “How sustainable is this level of spending growth that’s in this budget?” he asked. “Again, very hard to argue with any of the specific pieces on policy, but when you add it all together, are we on a path that is just unsustainable? If the economy goes in the negative direction, if we lose money from Washington, if we continue to have a net migration of taxpayers at the upper end of the contribution level .

..” DiNapoli said New York remains “very generous for school aid,” and that the budget included $35.

4 billion for Medicaid, the publicly funded health care program for the poor. “There’s really nothing in this budget that speaks to any kind of restructuring of how we disperse of the Medicaid funds,” he said, adding that there has been talk of Medicaid cuts in Washington. “How are we positioned to deal with any possible cutbacks, especially when that is a growing expense area?” DiNapoli said his office’s audits have often uncovered examples in recent years in which billions of dollars of Medicaid funds were not spent appropriately, efficiently or were often wasted.

He said it often involves a degree of fraud, but more often inefficient or improper billing, or Medicaid recipients being reimbursed for services for which they were not entitled. “It seems to me that this is an area where not just adding money but more of an effort at restructuring would be appropriate,” DiNapoli said. DiNapoli, the state’s comptroller since 2007 , said his office will issue a detailed analysis of the budget in the next few weeks.

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