New York faces $34 billion budget gap due to federal cuts, heightened spending
New York State is facing a $34 billion budget deficit, a 25% increase over the past three years, marking its largest shortfall since the 2009 financial crisis.According to State Comptroller Thomas DiNapoli, this deficit is driven by rising spending on Medicaid and education combined with notable federal cuts to safety-net programs under the Trump governance and Congressional Republicans’ spending legislation. The state has approved a $254 billion budget for the upcoming year, with Medicaid costs exceeding $112 billion, representing about 44% of the total budget. Gov. Kathy Hochul has warned that federal reductions in Medicaid funding could cost New York around $13 billion annually,worsening healthcare and other social services.Additionally, funding cuts to climate, clean energy, and resiliency initiatives are expected. School spending also increased by $37 billion (4.8%). Furthermore, New York’s job growth has slowed dramatically in early 2025, growing by 4,600 jobs per month compared to 19,100 monthly during the same period the previous year.dinapoli emphasized the urgent need for a fiscal strategy to address these challenges and support the state’s social safety net amid the restructuring of federal-state relationships.
New York faces $34 billion budget gap due to federal cuts, heightened spending
New York’s cumulative budget deficit has increased by $34 billion, or 25%, over the last three years, state Comptroller Thomas DiNapoli said in a report Friday.
The estimated budget gap represents the state’s largest since the financial crisis in 2009. The state’s deficit is due in part because of increased spending for Medicaid and education at the same time the Trump administration has made billions in cuts to safety-net programs and solidified in Congressional Republicans’ spending bill.
“This is likely just the beginning; the relationship between the federal government and the states is being restructured, and state governments will be facing drastic reductions in federal aid that could force difficult decisions about state revenue and spending priorities,” DiNapoli said. “There is an urgent need to formulate a fiscal response to the federal reconciliation bill and support New York’s safety net.”
State lawmakers approved a $254 billion budget for next year. Medicaid spending rose to more than $112 billion, about 44% of the total budget. The increase comes as Gov. Kathy Hochul (D-NY) has said federal cuts to health Medicaid will cost New York’s health-care system and budget about $13 billion per year.
“Besides increasing the number of New Yorkers who are uninsured or suffering from food insecurity, the state will also contend with changes made to terminate funding for climate, clean energy and resiliency programs,” DiNapoli said.
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Spending for schools increased by $37 billion, or 4.8%.
Job growth in the Empire State has also slowed dramatically compared to last year. From January to May 2025, New York employment growth averaged 4,600 jobs per more, which is down from 19,100 a month during that same period last year.
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