Early Indication of Challenging 2024–25 State Budget
On September 20, 2023, Blake Washington, the new director of the New York State Division of the Budget (DOB), issued the annual agency “call letter,” which requests that state executive branch agencies develop and submit to DOB their budget requests necessary to fund agency operations. The significance of the call letter is that it provides early insight into Governor Kathy Hochul’s proposed budget, which is expected to be released by mid-January 2024, for the state’s next fiscal year (April 1, 2024–March 31, 2025). Highlighting several factors that foreshadow a difficult fiscal situation for New York, the letter states that agency budget requests “should not exceed the total FY 2024 Enacted Budget agency funding levels, excluding onetime investments.” This zero-growth budget request, compared to call letters from recent years, which typically allowed for at least 2% growth, suggests that the Hochul administration will seek to significantly restrain spending in the forthcoming state budget.
The zero-growth budget request is not a surprise, as the factors cited in the letter—the loss of post-pandemic federal fiscal stimulus funding and a softening economy that has resulted in less-than-anticipated tax revenue—have been known for some time. In June and July 2023, respectively, DOB and the State Comptroller’s Office cited that projected budget gaps emerged for the next three fiscal years, totaling $36.4 billion. While New York State has approximately $19.5 billion in reserve funds that may be available, DOB Director Washington recently stated that Governor Hochul does not want to access those funds or raise taxes and intends to manage state costs to control these fiscal gaps. Accordingly, in the call letter, agencies are implored to review the “effectiveness and efficiency of all agency functions and services…for savings opportunities; programs and expenditures should be scrutinized; unnecessary duplication or overlaps should be eliminated; and technology efforts to enhance service and program delivery should be thoroughly explored.”
The $36.4 billion fiscal gap is an unprecedentedly large amount, but DOB Director Washington closes with an optimistic call to action: “The road to a balanced budget might seem daunting, but I am confident that through sound decision-making, strategic investments, and fiscal discipline, we can continue to show the compassion, care, and leadership that New York is known for.” Whether that is possible will be seen over the next several months as the governor and legislature negotiate a final state budget early next year.