New York State’s fiscal 2024 budget hits $227 billion as reserves stay high

New York Gov. Kathy Hochul unveiled her $227 billion executive budget proposal for fiscal 2024, up 2.4% from the final $220 billion fiscal 2023 budget that was approved in April.

The state’s fiscal year begins on April 1. Last year, the state budget was approved a week late.

“I’m committed to doing everything in my power to make the Empire State a more affordable, more livable, safer place for all New Yorkers,” Hochul said.

The budget Hochul presented is balanced. Deposits to reserves that had been planned for fiscal 2024 and 2025 will be completed by the end of the current fiscal year — two years ahead of schedule — for a total of $24 billion set aside for a rainy day, according to the Hochul administration.

Howard Cure, director of municipal bond research at Evercore Wealth Management, said that while the total proposed state budget increased by 2.4% overall, or $5 billion, the proposed state operating fund budget is up 6.1%.

The operating surplus is a result of still having federal funds from COVID relief as well as higher than budgeted tax revenues, Cure told The Bond Buyer.

“The increase in the budget is of some concern as there are projected deficits between fiscal 2025-27 totaling $22 billion, which includes the expectation of a recession and declines in revenues,” he said. “New York State’s budget can be particularly prone to recessions as there is a high dependence on a very progressive income tax system and a reliance on capital gains taxes. The vulnerability stems from the state’s reliance on a relatively few number of people, on a percentage of the population, that supplies an inordinate amount of revenues and the risk of relocation.”

He said that somewhat alleviating this deficit concern is the increase in reserves that will add up to $20 billion, or 15% of state spending. Also, he noted there were no revenue predictions from the new legal cannabis industry.

The budget watchers at the nonprofit Citizens Budget Commission commended keeping reserve levels high, but were wary about any future tax hikes or service cuts without implementing any cost savings in recurring state programs.

“With state coffers temporarily bulging, but significant fiscal and economic risks looming, the governor’s budget wisely accelerates and adds deposits to the state’s reserves and provides welcome support for migrant-related costs,” CBC President Andrew Rein said in a statement.

“While the reserve deposits help buttress New York against a recession, the budget also extends the temporary business tax surcharge and adds money for recurring programs without offsetting savings to support them in the future, setting the stage for potential future service cuts and unfortunately extending our nation-leading combined corporate tax rates,” he said.

Higher-than-expected tax receipts have contributed to a general fund surplus of $8.7 billion, acting state Budget Director Sandra Beattie said at a technical briefing after the budget presentation.

“More than half of the surplus will be used to accelerate deposits to principal reserves … a further $600 million will be used to fund deposits to the Retiree Health Trust Fund that were scheduled in later years, bringing the balance to $1.2 billion.”

She added that to ensure the state can abide by the limits imposed by the Debt Reform Act, $1 billion will be used to recapitalize the debt reduction reserve.

“This executive budget is a bit of a caretaker budget with an increase in spending at just over 2%,” John Hallacy, founder of John Hallacy Consulting LLC, told The Bond Buyer. “More significant funding increases include education, Medicaid and mental health.”

The budget would include $9.1 billion in mass transit operating support, including $809 million in operating support for non-MTA authorities. 

It would allocate almost $7 billion to the second year of a $32.8 billion five-year state DOT capital plan to improve highways, bridges, rail, aviation infrastructure, non-MTA transit, and DOT facilities including $1.2 billion for local roads and bridges and $1.3 billion for Penn Station.

“The governor has also proposed having the city increase its contribution to the MTA by at least $500 million annually,” New York City Mayor Eric Adams said in a statement. “The city annually contributes approximately $2 billion to the MTA in direct and in-kind contributions and, while we recognize the significant fiscal challenges the MTA faces, we are concerned that this increased commitment could further strain our already-limited resources.”

Rein said mass transit is crucial to the state’s economy.

“The governor wisely chose to propose a long-run plan rather than kick the can down the road. A multi-pronged strategy is reasonable; however, one major prong should be savings from MTA management and labor,” Rein said.

“The MTA, which is projecting severe operating deficits, is getting some relief — $800 million is from an increase in the MTA’s regional payroll tax,” Cure said. “This has been a relatively steady source of revenues for the MTA. The state will also provide $300 million in one-time aid to address issues caused by the pandemic.”

The MTA is expected to find $400 million in operating efficiencies which, in the past, hasn’t been successfully achieved, Cure said.

“There is also the expectation, beginning in 2026, of using a portion of revenues from downstate casino licensing fees and annual tax revenue to subsidize the MTA,” Cure said. “This would require additional state legislation as revenues from casinos are supposed to be dedicated to education.”

He said the MTA needs to start collecting revenues from congestion pricing to deal with its significant backlog of deferred maintenance and capital needs.

“There was no mention as to when congestion pricing will be implemented as the debate continues over which groups will receive exemptions,” he said.

Most also expect subway and bus fares will be raised to $3.00 from $2.75, which may be more difficult to implement since using mass transit has become more of a social equity issue as working-class peopleusually don’t have the luxury of working from home, he noted.

New York City Comptroller Brad Lander gave the state budget a mixed review.

“While the governor’s executive budget prioritizes important new investments in childcare and mental health services, and includes much-needed funding to support asylum seekers, in several other key ways this budget does not yet provide a solid foundation for the challenges we face ahead,” Lander said in a statement.

“At the same time, however, the governor’s budget would require the City of New York to chip in nearly half a billion dollars more for the Metropolitan Transit Authority. Just as the shift to remote and hybrid work hit the MTA’s farebox revenues, so too it hit the city’s commercial property tax revenues and redistributed them to the rest of the region.”

He said that rather than hiking fares, an increased share of payroll taxes, revenue from new casinos and the implementation of congestion pricing are the right ways to replace farebox revenue and make long-overdue upgrades to ancient signal technology and repairs.

“The state should not stick the city with the bill to sustain our regional public transit system,” Lander said.

New York State Republican Chairman Nick Langworthy called the budget a complete and unmitigated disaster. His party is outnumbered more than 2-to-1 in both houses of the state legislature.

“Hochul’s budget puts all New Yorkers on the hook to pay for President Biden’s failure to fix the border, increases taxes by $1.6 billion on businesses, shifts a billion dollars of Medicaid costs to county taxpayers, and shockingly fails to use all the tools at her disposal as governor to make the changes to our broken criminal justice system that would make New Yorkers safer,” he said in a statement.

“General obligation debt is dwindling while other forms of long term obligations continue to climb appreciably,” Hallacy said. “The stated debt service carry is manageable, but there are many other forms of debt that must be serviced.”

Issuers across New York State ranked first in the nation for municipal bond issuance in 2022, up from number three in 2021, selling more than $49.39 billion of debt last year, according to Refinitiv.

The state’s general obligation bonds are rated Aa2 by Moody’s Investors Service and AA-plus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.

“There are not many policy proposals tied to the budget but there are a few that may prove contentious,” Cure said. “This includes loosening the cap on the number of charter schools in New York City, bail reform and indexing the minimum wage to inflation.”

Hallacy said that looking forward there were two notes of caution mentioned in the budget documents — the state’s population loss and the outyear gaps.

“Of course, the influx of migrants will eventually affect the population number, but outmigration is a factor to continue to monitor,” he said.

“The second cautionary note is about the outyear gaps that are larger than in the recent past. No actions are included to moderate these amounts so it stands to reason that they will moderate to an extent,” he said. “The state does not have much financial flexibility on the revenue side going forward.”