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As state faces mounting deficit, Hochul tells state agencies to hold the line on spending

Gov. Kathy Hochul updates New York's business leaders on the state's finances and developments in the state's migrant crisis on Sept. 22, 2023.
Mike Groll
Office of Gov. Kathy Hochul
Gov. Kathy Hochul updates New York's business leaders on the state's finances and developments in the state's migrant crisis on Sept. 22, 2023.

With a mounting state deficit, Gov. Kathy Hochul’s budget director is asking state agencies for a spending freeze.

In a letter to state agency heads, Blake Washington wrote that an end to three years of pandemic-era federal stimulus packages and lower-than-expected tax collections are fueling the gap, which is estimated to reach $9 billion next year. That’s the largest deficit since the Great Recession.

Washington told the commissioners that their spending requests for next year's budget should not total any more than the amount they were allotted in the current year’s spending plan. He asked them to find efficiencies and savings opportunities and to look to technological innovations to cut costs for services and the delivery of government programs.

Hochul spoke about the decision during her annual speech to the state’s Business Council.

“I just told all my agencies yesterday, hold the line on spending,” Hochul said Friday.

Ken Girardin with fiscal watchdog group the Empire Center said the governor is doing the right thing.

“Governor Hochul is on the right track to be looking for savings and efficiencies,” he said.

Girardin said the state’s financial problems are rooted in the pandemic era, when for three years in a row the spending rate rose above the inflation rate. And he said when the new budget was approved in May, the governor and legislature left a $2 billion gap between expenses and the revenues expected to pay for them.

“And they sort of papier-mâchéd over that with money that was lying around,” he said. “What we're seeing now is that as folks essentially continue to expect the same level of spending increases, and as the state tax revenue forecasts have been revised downwards, we see this roughly $10 billion budget gap opening up.”

Another fiscal uncertainty is the costs for housing and feeding the over 100,000 migrants who have entered the state in recent months.

The governor said last month that aiding the migrants could cost an additional $4.5 billion.

A recently announced agreement between President Joe Biden and Hochul that will allow asylum-seekers from Venezuela to obtain work permits as early as November should ease some of the strain.

But Girardin said there’s no predicting when the crisis will subside.

“The biggest problem from a state budget perspective with the migrant crisis is that we don't know when it will peak,” Girardin said.

Hochul said one factor in the state’s favor is that she’s built up the state’s reserve funds during her two years as governor.

“We are now at about 18% reserves, $19 billion,” Hochul said. “Because when that rainy day comes, I don't want to be in a position to either raise taxes or cut services dramatically. So we are in a good place.”

Girardin urged Hochul to hold fast to that reserve and not heed calls from progressive Democrats who want to use the money to fill spending gaps.

Others are not as pleased with the spending freeze.

Jasmine Gripper with the school funding advocacy group the Alliance for Quality Education said the decision means a cut to education and services for New York’s schoolchildren because those needs continue to grow.

She urged the state Education Department, which is not under direct control of the governor, to ignore the request and submit a budget request that is “based on meeting students’ needs.”

State agency budgets are due Oct. 11. Hochul will present her new budget in January.

Karen DeWitt is Capitol Bureau chief for New York State Public Radio, a network of public radio stations in New York state. She has covered state government and politics for the network since 1990.