Gov. Kathy Hochul proposed a $252 billion budget on Tuesday that calls for extending a tax hike on millionaires and increasing spending on Medicaid. But her plan omits specifics about how she will work with lawmakers to shore up the finances of the Metropolitan Transportation Authority and declines to send the city any new funding for the migrant crisis.
Fueled by strong tax revenues, Hochul is proposing to grow the state’s spending by about $15 billion in Fiscal Year 2026 compared to the current financial plan that began April 1. Those new expenses include continued high spending on Medicaid, as well as the tax cuts for low- and middle-income earners and $3 billion in “inflation refund” checks that Hochul has promised in recent weeks.
To cover some of those costs, the governor proposed extending an Andrew Cuomo-era “millionaire’s tax” that raised income tax rates by about 0.8 percentage points for filers earning over $2.2 million. Enacted in 2021 and set to expire at the end of 2027, Hochul’s budget would extend it five years through 2032.
Hochul’s executive budget will form the basis of negotiations with the state Legislature ahead of an April 1 deadline. This year’s talks may be dominated by the question of how to fund the MTA’s $68 billion five-year capital plan, which legislative leaders rejected in December based on concerns that no funding sources had been identified for nearly half of the program.
Despite those question marks, the state will enter Fiscal 2026 on fairly strong footing, with a surplus totaling $5 billion between 2025 and 2026 before any of the new policy proposals are factored in.
“Bolstered by increased revenues, New York is in a strong financial position. This enables us to sustain vital services while delivering billions in middle class tax cuts, inflation relief, and a tripled child tax credit,” Hochul wrote in an introduction to her budget. She is scheduled to expand on the plan in a Tuesday afternoon speech.
Still, gaps between future years’ spending and revenues stand at a respective $6.5 billion, $9.8 billion and $11 billion for Fiscal Years 2027 through 2029. And Hochul’s office pointed to uncertainty on the horizon — most notably President Donald Trump’’s promised tariffs, mass deportations and reductions to federal assistance that could hurt the state’s finances. Much like the city budget that Mayor Eric Adams proposed last week, however, the state is not taking any major steps to account for that changing federal landscape.
‘Unsustainable’ Medicaid spending; MTA in flux
The state expects to spend $35.4 billion on Medicaid in the upcoming fiscal year, according to the governor’s plan — an increase of $4.3 billion from the current year. Medicaid spending has tripled in the last 15 years to “unsustainable” levels, largely because of high costs related to long-term care programs including the growing Consumer Directed Personal Assistance Program, as well as increasing enrollment in public insurance. Approximately 7 million New Yorkers are enrolled in Medicaid, an increase of 900,000 enrollees since before the Covid-19 pandemic, budget documents say.
Hochul plans to offset some of those spending increases with revenue from the newly approved managed care organization, or MCO, tax. In December the federal government greenlit New York’s plan to enact a tax on health insurers that will boost federal health care revenues, which is expected to bring in $3.7 billion to help balance the state budget. The state will use that funding over three years, spending $1.4 billion of the total in the upcoming fiscal year to fill Medicaid deficits, increase rates to hospitals and nursing homes and invest in safety-net facilities.
A portion of revenue from the MCO tax will fund the safety-net transformation program, an initiative launched in last year’s budget to offer financial incentives to financially stable hospitals to partner with safety-nets and improve their finances. The tax revenue will cover an additional $300 million in operating funds for the safety-net transformation program.
Hochul’s budget leaves uncertain how the state will pay for the MTA’s 2025-2029 capital plan — saying only that she will “work closely with the Legislature” to figure out funding. Although Hochul has pledged to support the $68 billion plan to modernize the region’s mass transit, Assembly Speaker Carl Heastie and Senate Majority Leader Andrea Stewart-Cousins have withheld their support after noting that some $33 billion relied on yet-to-be-identified funding sources.
Other items in Hochul’s executive budget include:
$160 million to create a 100-bed forensic inpatient psychiatric facility on Wards Island$100 million in capital funding for local governments that have registered as “pro-housing communities” — an incentive program she first launched in 2023$58 million to help New York City pay for police deployments on the subway system (the state’s contribution will reach $77 billion over two years)$6.5 million to help create “welcome centers” at five city subway stations, where mobile outreach teams can offer services to unhoused peopleExtending a pandemic-era tax credit for musical and theatrical productions in New York City for two years to 2027, and expanding it from $300 million to $400 million.Legislation to advance other parts of her 2025 housing agenda, including banning the use of price-fixing software by landlords, discouraging private equity firms from buying homes and reducing taxes for affordable Mitchell-Lama developmentsLowering income taxes for joint filers earning below $323,200, as Hochul announced in her Jan. 14 State of the State addressAdding $1 billion annually to the state’s rainy day fund over the next four years, to guard against future risksThe $1 billion that Hochul committed in December to city housing programs as part of negotiations on Mayor Eric Adams’ City of Yes planNo new aid to New York City for the migrant crisis, which has cost the city some $6.9 billion through 2024. The state has already committed a total of $4.3 billion in its last two budgets — covering the cost of three large-scale shelters — and while Adams has asked for additional help, Hochul said only that the state will “maintain support” through the previous allocations.
Caroline Spivack contributed reporting.
