Strong returns on Wall Street mean there’s no need to raise New York state taxes this year, Gov. Kathy Hochul said Tuesday.
The Democratic governor proposed a $260 billion budget that includes new spending for child care and continues increases in school aid for every district. The state’s share of Medicaid spending will increase by several billion dollars to make up for federal cuts enacted last year.
While Hochul’s budget proposal extends higher corporate rates that were set to expire, it doesn’t increase business, sales or income tax rates. The governor said she doesn’t believe those are necessary.
“You can make historic investments without raising income taxes, without mortgaging the next generation,” she said. “I feel particularly obligated to be a responsible steward while also investing in how we build a better future.”
The $260 billion plan includes the state’s $157.4 billion operating budget as well as $21.8 billion of capital expenditures and $80.8 billion of federal funding that is spent by the state – a lower amount than in recent years. The state is proposing to spend $39.3 billion on school aid, $40.4 billion on state agencies and employees as well as $38.4 billion for its share of Medicaid, which is jointly funded with the federal government.
In all, the proposed budget represents a 2.3% uptick over last year’s spending – a smaller increase than previous years.
Hochul’s budget presentation kicks off weeks of hearings and months of negotiations with the state Legislature. Democrats, who control both the state Assembly and Senate, have favored increasing taxes on the rich. Legislators are advocating broader spending in a number of areas.
Assembly Speaker Carl Heastie called it a “good opening” but said he would talk with his colleagues to “put together the Christmas list, and then see how to pay for the Christmas list.”
Senate Majority Leader Andrea Stewart-Cousins said raising taxes remains on the table for her conference, but based on what Hochul outlined they are “ rowing in the same direction.”
Republicans said the budget should do more to restrain spending. Nassau County Executive Bruce Blakeman, a Republican who’s running for governor against Hochul, faulted her for continuing to fund health coverage for noncitizen immigrants.
Blakeman also criticized Hochul for not cutting taxes or slashing spending on social services.
“This budget does nothing to help everyday New Yorkers pay their bills,” he said.
Hochul’s budget “continues the disturbing and failing pattern of reckless spending in New York,” said Assembly Minority Leader Will Barclay. “Our state budget is about to cave in under its own weight.”
Hochul said her budget showed “discipline.”
The state’s current fiscal year ends on March 31, so a new budget must be in place before April 1. In recent years, the governor and lawmakers have missed the deadline by several weeks, but passed short-term funding bills that kept the government operating while they continued to negotiate.
Those delays have come from policy proposals that Hochul bakes into her budget legislation. This year, she is proposing new restrictions on children using AI chatbots as well as protest-free buffer zones around houses of worship.
The governor is also proposing changes to rules relating to auto-insurance payouts as well as exemptions from environmental reviews for some housing projects. Advocates said they would carefully scrutinize those policy proposals when policy bills that accompany the budget are introduced.
The biggest new spending proposal is for child care. Hochul wants to increase funding for an existing day care voucher program by $1.2 billion — or around 50% — and provide around $500 million in new funding for pre-kindergarten programs around the state serving 3- and 4-year-old children.
Hochul is proposing to again spend $77 million to pay for extra police on New York City’s subway system. And amid a continuing staffing shortage in the state’s correctional system, Hochul is proposing $535 million to pay more than 2,000 National Guard personnel who are working in prisons.
The proposed budget also includes $20 million for Riverbank State Park in West Harlem and a $5 million program, tied to the World Cup, to fund soccer fields. Hochul plans to direct $300 million to projects in Rochester, including the creation of a new state park at the High Falls on the Genesee River. There is also a proposed $30 million program that would give grants of up to $3,000 to farmers affected by tariffs installed by President Donald Trump.
Budget Director Blake Washington said the new expenditures are possible because of continued consumer spending and what’s projected to be a good bonus year for Wall Street bankers. The state is now expecting an additional $3.7 billion of revenue in the fiscal year that ends March 31 and an additional $7.4 billion that will be available for the coming budget year.
“This is all due to the strength of Wall Street coupled with the state’s already progressive tax code,” Washington said. “Wall Street defied the odds and exceeded everyone’s expectations.”
The lingering question is how long the strong flow of revenue will last, and whether it will grow in tandem with the rising expenses of the new child care system, which is projected to cost $75 million in its first year and $425 million in its second year. The state is projecting a $6 billion deficit for its 2027-2028 budget.
“We have a progressive elastic tech system that works really well when times are good, but when times are bad, it can crash pretty hard,” said Andrew Rein, president of the Citizens Budget Commission, a fiscal watchdog. “That’s why the smart thing to do is take some of this … windfall and put it into reserves.”
Progressives say the possibility of a crash is reason to add new revenue streams or increase existing ones.
“Without new, robust, and consistent public funds, New Yorkers will suffer,” said Brahvan Ranga, manager of the Invest in Our New York campaign, which advocates higher taxes. “True statewide universal child care, where the workforce is paid a living wage, requires long term, stable revenue — not shifting funds from other programs and agencies year after year creating winners and losers.”
New York City Mayor Zohran Mamdani reiterated his call for the state to impose a new tax on its highest earners following Hochul’s presentation. While he said the governor’s budget makes meaningful investments in child care, “it is time to ask New York City’s wealthiest and large corporations to pay their fair share.”
While Hochul stresses she’s not raising taxes, the budget plan does add new “sin taxes” to the state’s revenue system. The administration proposes applying the existing 75% wholesale tobacco tax to synthetic nicotine products like Zyn pouches.
And Hochul is supporting an extension of the 7.25% top corporate tax rate for three years — against the wishes of some business leaders. Rein called that “unfortunate.”
“We think we should let that sunset for New York’s competitiveness,” he said.
There is also considerable uncertainty about federal funding.
The state has asked the federal government for a waiver that would let it continue to provide services to noncitizen immigrants, who are now covered as part of the Essential Plan, which provides state-backed health insurance coverage. The Republican-authored federal spending bill passed last summer limited immigrants eligibility for Medicaid, a joint state-federal program that provides health care for low-income and disabled people.
Washington, the budget director, said the state’s goal is to keep covering people currently enrolled in state-backed insurance plans.
“At a time of enhanced volatility out of Washington and a drive to shed enrollment and to scare people away from becoming covered, we in the state of New York are holding the line,” he said.
Additionally, President Donald Trump has threatened to withhold federal funding for sanctuary cities including New York. Federal agencies have also frozen grants for infrastructure and child care, prompting the state to sue.
State Sen. Steve Chan, a Republican representing parts of Brooklyn, said Hochul should stop inviting Trump’s ire. “ I don’t understand how we can attack the federal government, especially our president, at a time when the economy is good and it’s Wall Street that’s generating extra money for the state.”
This story has been updated with additional reporting.
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