Federal Actions Continue to Cause Uncertainty for State's Economy and Finances; Comptroller Warns of Reduced Independent Oversight
State Comptroller Thomas P. DiNapoli’s report examining the proposed State Fiscal Year (SFY) 2027 Executive Budget warns the trajectory of projected state spending is estimated to increase at a rate faster than expected revenues, creating cumulative outyear budget gaps estimated by the Division of Budget (DOB) to total $27.5 billion through SFY 2030. Actions taken in Washington, including federal reductions in aid, create increased fiscal strains that are likely to affect the state’s economy, finances and safety net.
“The Executive Budget for the upcoming state fiscal year comes at a time of unusual fiscal uncertainty, caused largely by federal policies that have injected unnecessary volatility into the state and national economies, and disruptive changes in the state’s relationship with the federal government,” DiNapoli said. “These policies will result in lost funding and increased costs to the state, and could deal a devastating blow to hundreds of thousands of New Yorkers with the loss of health coverage, nutritional assistance, safety net protections and more. As negotiations commence, policymakers need to proceed with caution as they work on balancing the budget, improving affordability and maintaining vital services for New Yorkers. I oppose the proposals to erode contract oversight by my office for billions in spending of taxpayer money. Independent oversight and broader competition in the procurement process are not obstacles but are essential checks that ensure public funds are spent responsibly and fairly.”
Federal Budgetary and Policy Actions
President Trump’s tax and policy bill enacted in July limited and shifted federal support for the social safety net, and will affect how New York provides key services, including healthcare coverage for many New Yorkers. Moreover, federal administrative actions increasingly place at risk the level, timing, and reliability of support flowing to the state.
There have been numerous attempts by the current federal administration to freeze, withhold, or cut funding to the states, including funding to support child care, food assistance, clean energy projects, and major infrastructure projects such as the Gateway Hudson Tunnel Project. These federal actions are creating more financial risk for the state and leading to a more complex fiscal environment. Federal funding remains essential in providing New Yorkers with critical services, but this funding can no longer be treated as automatic or reliable.
DOB’s most recent projections for federal receipts reflect the effects of the tax and policy bill and show a $9.4 billion (10%) decrease in SFY 2027 from SFY 2026 levels. The largest dollar change in projected federal aid is with the Essential Plan, for which DOB projects a decrease of $10.8 billion as compared to SFY 2026. Aid for social welfare is projected to decrease by $270 million.
The dramatic decrease in Essential Plan spending reflects the program’s heavy dependence on federal funding and the significant effects of the tax and policy bill. In October 2025, the state Department of Health (DOH) submitted a request to the Centers for Medicare & Medicaid Services (CMS) to terminate its Section 1332 State Innovation Waiver, which allowed the state to provide expanded coverage under the Essential Plan, and revert to the Basic Health Program (BHP). As of the publishing of this report, CMS has not responded to the state’s request. If the state’s BHP Waiver application is not approved, DOB estimates approximately 525,000 individuals would shift to Medicaid. Since many of these individuals would not qualify for a federal share of Medicaid, the state would bear 100% of their Medicaid costs. The Financial Plan indicates the state would wind down the Essential Plan, enrollment would drop to zero in SFY 2027, and formerly EP-covered individuals (aside from those approximately 525,000) would have to find alternative means of health insurance or forgo coverage altogether.
Negative Transparency and Oversight Actions
Certain proposals in the Executive Budget limit government accountability and bypass the oversight of the Office of the State Comptroller (OSC). This includes a proposal in the Public Protection and General Government budget bill, which if enacted, will erode the office’s independent oversight of state contracts, which was successfully restored by the Legislature just four years ago. The proposal would increase some discretionary purchase thresholds to $300,000, and would eliminate the requirement for OSC approval of any purchase order or other procurement transaction issued under centralized contracts. The diminished oversight from these changes would be significant – in 2025, there were nearly 6,000 contracts executed that were between $50,000 - $300,000, totaling nearly $1 billion. If these provisions are enacted, OSC estimates that over $3 billion in taxpayer funds may be expended without independent OSC oversight. In total, DiNapoli’s office estimates the Executive Budget exempts at least $4 billion from OSC oversight and a competitive process.
Revenue
DOB revised its Mid-Year Financial Plan Update forecast for All Funds revenues upwards by $22.9 billion over the Financial Plan period. This revision is largely a result of higher projected tax revenues, particularly personal income tax (PIT) receipts, reflecting stronger wage growth estimates and higher projected bonuses in the finance and insurance sector. With receipts coming in stronger than expected, DOB projects budget surpluses of $2.4 billion in SFY 2026 and $3.5 billion in SFY 2027. The Executive Budget Financial Plan proposes utilizing these resources to support one-time costs and new initiatives, as well as to make debt prepayment and offset outyear deficits.
Spending Growth
DOB estimates All Funds spending to grow by just 0.7%, or $1.7 billion, in SFY 2027, reflecting anticipated declines in federal support. State Operating Funds (SOF) spending is expected to grow by $8.6 billion (5.7%), and General Fund spending (including transfers to other funds) is expected to grow by $537 million (0.4%). Absent the $7.1 billion one-time repayment of the outstanding federal Unemployment Insurance (UI) balance in SFY 2026 which skewed spending higher, General Fund spending growth would be $7.6 billion (6.4%).
DOB’s projections for spending are higher than those for revenue over the Financial Plan period. SOF disbursements are projected to grow 21.5%, outpacing projected growth of 8.7% in receipts. General Fund receipts are expected to grow 9.8% compared to disbursements that are projected to grow almost twice as fast, 18.5%. As a result, outyear budget gaps are forecast to be $6 billion in SFY 2028, $9 billion in SFY 2029, and $12.5 billion in SFY 2030.
Much of the state’s spending growth stems from Medicaid spending. From SFY 2019 to SFY 2026, state-share Medicaid spending has grown $20.7 billion, or 89%. From SFY 2026 to SFY 2030, DOB projects it will grow by an additional $12.9 billion (29.4%). Containing Medicaid costs has been an ongoing challenge for the state, and the rapid growth in Medicaid spending may risk crowding out other priorities, such as education, public safety, and infrastructure.
Capital Plan and State Debt
Over the five-year Executive Budget Capital Plan (SFYs 2027 through 2031), capital spending is projected to total $106.1 billion, nearly $4.6 billion (4.5%) more than the SFY 2026 Enacted Budget Capital Plan. Over the five-year Plan period, state pay-as-you-go capital spending is projected to total $32.1 billion, a $2.7 billion (9%) increase over the prior five-year plan. Capital projects financed by public authority bonds are estimated at $53.3 billion, an increase of nearly $1.3 billion (2.5%).
Despite enhanced levels of pay-as-you-go in New York’s capital planning, the state continues to rely too heavily on bond financings by public authorities. Total state-supported debt outstanding is projected to grow nearly 60% during the next five years, from $61.6 billion to $98.3 billion. Over 95% of the state’s debt burden consists of public authority “backdoor” borrowings, something long criticized by DiNapoli for its lack of transparency and accountability to the public. The projected rapid increase in state-supported debt levels during the next five years would materially impact capacity remaining under the state’s debt limit, which is estimated to approach the cap limit with only $351 million available by SFY 2031. Adjusted for prepayment actions, debt service payments are projected to increase by nearly 40% over the next five years.
Rainy Day Reserves
The FY 2027 Executive Budget Financial Plan indicates that the state will continue to shift funds from the informal “economic uncertainties” reserve into the Rainy Day Reserve Fund (RDRF). By SFY 2028, the RDRF is estimated to total $10 billion and the Tax Stabilization Reserve Fund will have $1.6 billion, for a total of $11.6 billion in statutory rainy day reserve funds. This would be an all-time high balance in statutory rainy day reserves for the state, and a fiscal safeguard that has been championed by DiNapoli. Shifting funds from informal to statutory reserves better protects such funds from being depleted, as statutory reserves have requirements for both use and replenishment.
Despite projected surpluses in both SFY 2026 and SFY 2027, no additional funds are being directed toward increasing overall “principal reserves,” which DOB defines as the combined statutory rainy day reserve funds plus the informal “economic uncertainties” reserve. As a result, these principal reserves would remain at $14.6 billion for the Financial Plan period. At that level, they will decrease as a share of SOF over the life of the Financial Plan, and the state would need over $7.7 billion in additional deposits to “principal reserves” in SFY 2026 in order to achieve the 15% threshold that DOB uses as a preferred benchmark.
Report
Report on the State Fiscal Year 2027 Executive Budget
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