New York State officials extended the state’s fiscal 2025 budget deadline a second time Thursday as legislators aim to resolve challenges, including education and affordable housing funding, with another new deadline — Monday, April 8.
And another deadline extension seems likely, as many
Last year, the governor and Legislature came to an agreement on the
Bloomberg News
But the late budget is not yet a cause for concern, said Ladunni Okolo, the primary New York State analyst for S&P Global Ratings. To start with, New York has already avoided some of the risks that it might incur with its budget delayed past the April 1 start of its fiscal year.
“One of the risks that is most pertinent to us as a rating agency is their ability to pay their obligations, particularly their debt,” Okolo said. “New York appropriates its debt based on the last fiscal year, so by the end of the fiscal year, they’ll have to pay the debt for the following fiscal year. And so, because they have those bills in place, those debts get paid whether or not the budget is passed on time or not.”
Budget delays aren’t particularly unusual, Okolo said. Last year, New York’s budget was almost a month overdue, and it was one of 15 states with delayed budgets. Most of those delays lasted a couple weeks, Okolo said.
New York first extended its budget deadline in late March, when it pushed the deadline from April 1 to April 4.
“While I believe a final agreement is within reach,” Hochul, a Democrat, said in a
The formal delays preserve funding for state services and National Guard salaries while the legislature continues negotiating.
Lawmakers entered negotiations in February with good news, when State Comptroller Thomas P. DiNapoli announced that New York City collected more revenue than initially forecast.
The extra revenue, which mostly came from taxes and infrastructure rental payments, should make it easier for the legislature to finish negotiations in a more timely fashion, according to Fitch analyst Tammy Gamerman.
Hochul’s
The executive budget addresses issues including education, housing, Medicare and public safety, and attempts to narrow budget gaps without raising income taxes.
The budget proposed using $2.4 billion from the state’s reserves to help fund the response to the ongoing migrant and asylum-seeker crisis, an increase from the $1.9 billion in funding for the migrant crisis in the FY 2024 budget.
Despite that use of reserves, the state would still have $19 billion in that reserve, plus another $2.2 billion when including the debt management reserve and the retiree health benefit trust fund. The state will deposit another $500 million from its expected budget surplus into its reserves at the end of the fiscal year.
The budget includes projections for future budget gaps. Budget Director Blake Washington said this year’s proposed budget will lower those gaps by 50%. There would be a $5 billion deficit in FY 2026, $5.2 billion in 2027, and $9.9 billion in 2028, according to state projections.
The most expensive item on the budget is education, where
The state increased education aid by $6 billion over the last two years, partly to supplement federal aid from COVID packages running out. This budget proposal is about a 2.4% increase from FY 2024.
New York currently funds schools on a prorated, per-pupil basis, Okolo said. Hochul is seeking to switch to a need-based system, and also wants to eliminate the “hold harmless” provision, where schools can’t lose funding if enrollment declines.
Debates around this issue are happening across the country, Geoff Buswick, managing director and sector lead at S&P Global Ratings, said, noting a predictable pattern.
“They set a policy in place. It works for a while, and then you start to see winners and losers in the school districts, and there’s often a lawsuit that says you’re not following the constitution or the law isn’t being adopted. And so then they come up and they set another policy,” Buswick said. “And so, yes, there’s some discord right now at the legislature of how the money will go from the state to the school districts. But I think it’s not that dissimilar to what we’ve seen in other states.”
Some of the policies up for debate aren’t necessarily critical to the state budget, Gamerman said, but often get decided during negotiations. Affordable housing policy, which so far has been a big point of negotiation, falls into this category, as does whether to
But there’s also negotiations happening about housing policy, how to create more affordable housing and new construction and some other policy issues that are not critical to the state budget.
“New York doesn’t have a budget and it’s all to do with housing,” said Joseph Krist, publisher of Muni Credit News. “While most magnified in NYC, housing is increasingly a statewide issue; even in the rural counties. It’s going to take a complex deal to settle things and then the budget will move forward.”
“For those larger issues such as housing, it is possible, if it’s clear that they’re not going to be able to come to an agreement on those issues in the near term, they could take those off the table for now and we’ll come back to it later in the session,” Gamerman said.
In the short term, the budget delay seems manageable and will not affect how S&P sees New York’s rating, Okolo said. The delay would need to last months into the fiscal year, or the state would need to have a consistent pattern of destructive budgets to affect the state’s rating.
In 2023, issuers across New York State ranked third in the nation for municipal bond issuance, falling from number one in 2022, selling $42.26 billion of debt last year, down from $49.9 billion in the prior year, according to LSEG.
The state’s general obligation bonds are rated Aa1 by Moody’s Investors Service and AA-plus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.