New York’s political landscape has been shaken following the enactment of the Republican tax and spending bill signed into law by President Donald Trump. With political leaders in New York denouncing the legislation, they failed to effectively prepare for the significant loss of billions of dollars in federal aid that will impact both the state and the city.
The implications of this law are immediate and severe, creating a multi-billion dollar shortfall in the current state budget due to reduced federal Medicaid funding. New York’s Governor Kathy Hochul is likely to convene a special legislative session to address this issue in the coming months.
As the state prepares for the next budget cycle, which must be adopted by March 31, the financial landscape looks grim as both the governor and legislators gear up for their reelection campaigns.
In order to comply with the new federal requirements, state officials will need to construct a system to enforce work and eligibility rules. This shift raises critical decisions about whether to maintain Medicaid and SNAP food benefit enrollments or to allow them to decline, which would lessen the financial pressure on the budget.
While the immediate effects on New York City may not be as drastic, Mayor Eric Adams and the City Council will eventually face challenging decisions regarding support for vulnerable populations. They must determine whether to fill in the gaps created by the GOP legislation or to make cuts to services aiding New Yorkers in need.
As discussions unfold, key figures, including Gov. Hochul and Mayor Adams, have remained largely silent about their intended course of action. However, organizations and experts are already weighing in on the issue.
The progressive Fiscal Policy Institute is advocating for tax increases to mitigate the impending fiscal challenges. Nathan Gusdorf, the Executive Director of the Institute, noted that the new federal budget legislation signifies a paradigm shift in fiscal policy, placing a greater burden on states to finance social spending. He urged state lawmakers to pursue innovative solutions for funding public health insurance and safety-net programs to avoid food and housing insecurity.
Conversely, the conservative Empire Center suggests that New York is equipped to deal with the ramifications of reduced federal funding through improved management of existing resources. Health care expert Bill Hammond highlighted that New York’s health care system is one of the most financially supported in the nation, receiving a $36 billion increase in government support over the past four years. Thus, he argues, the state should endure these financial challenges without the dire consequences forecasted by state leaders.
The situation is compounded by the fact that both state and city officials increased spending at rates significantly ahead of inflation without reserving any funds to cushion the anticipated fallout from federal aid cuts. According to the Citizens Budget Commission, the final budget signed by Gov. Hochul raised overall spending by 12% excluding federal aid, marking the highest increase in recent years and tripling the inflation rate. This included a $7 billion expenditure to eliminate a debt owed to the federal government for unemployment insurance, which reduced the state’s reserves by one-third while lowering taxes for employers and increasing jobless benefits.
On the city level, the budget adopted recently also reflected a nearly 8% increase in spending when adjusting for financial gimmicks, again exceeding the inflation rate. Despite multiple requests, the mayor and City Council opted not to increase the reserve amount, which has remained stagnant at $8.5 billion for several years.
The core issue affecting the state lies in its reliance on federal funds for Medicaid and the state’s Essential Plan, which covers individuals who earn slightly above the eligibility threshold for the Affordable Care Act. As a consequence of the new Republican law, New York is set to lose approximately $7.5 billion designated for legal immigrants in the Essential Plan, mostly funded by the federal government. This shift will necessitate transferring numerous recipients to Medicaid, which incurs an additional cost of $2.7 billion, as federal aid only covers around 56% of actual expenses.
Due to the timing of the state’s fiscal year, the current budget will feel the impact of about $2.5 billion in additional costs. However, for the 2027 fiscal year, the total cost could exceed $10 billion. Moreover, over the next several years, the law will progressively impose an additional $1.5 billion burden on the state by eliminating a financing maneuver that generates federal funds through taxing health care providers.
Further complicating matters, federal aid for SNAP benefits is anticipated to decline by nearly $3 billion for New York state. Fortunately, a last-minute deal that secured Alaskan Republican Senator Lisa Murkowski’s vote may postpone the anticipated cuts.
Additionally, New York will need to implement a new system that verifies the eligibility of Medicaid and SNAP recipients biannually under the new work requirements. The Hochul Administration estimates that this system will cost around $500 million annually.
The efficacy of this system raises critical questions about its objectives. Republican leaders project that the resulting savings will stem from a decrease in recipients, potentially leaving 1.5 million more New Yorkers uninsured, according to estimates from the Hochul administration. In contrast, organizations like Public Health Solutions aim to ensure that as many individuals as possible maintain their eligibility status, indicated by Chief Strategy Officer Zach Hennessey.
The implications of these changes are significant, especially considering the findings of a survey conducted by Public Health Solutions. Among New Yorkers with household incomes under $60,000, 71% indicated they would struggle to retain insurance, and 64% expressed concerns about maintaining their ability to attend doctor visits.
In light of the last-minute changes to SNAP benefits, city officials may not immediately need to make decisions regarding increasing food assistance. Nevertheless, ongoing budget cuts at the federal level have strained the resources of the city’s food banks.
Looking ahead, the city will face additional challenges, particularly concerning the budget proposal for the fiscal year beginning October 1. This proposal threatens to slash housing aid by 43%, nearly halving the annual $13 billion the state allocates, the majority of which is distributed to local governments. Such cuts would place immense pressure on the city government to compensate for any shortfalls resulting from the proposed Trump plan.
Nine Republican representatives from New York’s congressional delegation supported both the original House legislation and the Senate version that ultimately became law. They are banking on the belief that the tax cuts will benefit a majority of New Yorkers, despite the potential adverse effects on welfare programs.
Suburban Representative Mike Lawler, who is considered one of the more vulnerable Republicans, emphasized their commitment to reducing the largest tax increase in American history and putting more money back in the pockets of citizens. He pointed out that they managed to secure significant SALT relief and tax cuts for families, small businesses, and seniors.
The recent law retains tax reductions initially enacted during Trump’s first term while adding new provisions for overtime, tips, and seniors. However, these enhancements are set to expire in 2028, coinciding with the end of President Trump’s current term.
Among the key victories for New York Republicans was the increase of the cap on state and local taxes (SALT) deductions from $10,000 to $40,000, though the benefits will phase out for individuals earning above $500,000. The primary beneficiaries of this change will likely be suburban upper-middle-class households who are subject to high property taxes and mortgage interest deductions.
An initial assessment conducted by the left-leaning Institute on Taxation and Economic Policy suggested that this law could reduce federal income taxes for New Yorkers by approximately $30 billion annually, with 70% of those reductions benefiting the top 20% of income earners in the state.
According to Gusdorf, this creates room for the state to implement tax increases since the federal tax cuts might alleviate the financial burden of state or local tax hikes.
As New York progresses through these changes, the full ramifications of the law and its numerous components will not be clear for some time — including provisions that allocate $2 billion for hiring and training more immigration enforcement agents, the establishment of new “Trump accounts” with deposits for newborns, and a $10,000 deduction for interest on loans for purchasing American-made vehicles.
Budget experts warn that there is no time to waste. “Given that these cuts will phase in over time, it is imperative to take a thoughtful approach that assesses the impact and prioritizes programs based on their importance and the needs of New Yorkers,” stated Ana Champeny, research director of the Citizens Budget Commission.
Champeny adds a note of caution: “We must prepare for additional cuts that are likely to arise in the next year’s federal discretionary budget, starting in October.”
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