Big Budget Blowback

Good morning and happy Bastille Day!  If you have any free time, consider storming a nearby medieval fortress and/or royal prison. It is just that kind of day.

That is undoubtedly the environment here in New York, beginning with state lawmakers sounding the alarm about the impact of the recently passed federal legislation—the One Big Beautiful Bill (OBBB)—on New York and New Yorkers. Immediately after the bill was signed into law, Hochul released a statement saying, “There’s nothing beautiful about this bill. It’s a big, ugly betrayal—stripping health care, hiking costs, and slashing food assistance for millions. And it was made possible by New York’s seven Republican members of Congress. They wrote it. They endorsed it. Now they’re cheering it on, selling out the very people they were sent to Washington to represent.” According to an analysis by the New York State Department of Health, nearly 1.5 million New Yorkers are in danger of losing Medicaid coverage and becoming uninsured due to the cuts prescribed in the bill. Similarly, the Fiscal Policy Institute estimates that more than 1 million New Yorkers will see their Supplemental Nutrition Assistance Program (SNAP) benefits reduced or eliminated. There are also serious concerns for rural hospitals as they are heavily reliant on Medicaid funding. Even with the $50 billion Republicans included to supplement rural hospitals, there are still 11 in New York that are in serious danger of closing, according to a joint letter from Senate Minority Leader Chuck Schumer. Bea Grause, president of the Healthcare Association of New York State (HANYS), said, “Healthcare providers will be forced to make difficult decisions about staffing and services, affecting patient access across urban, suburban, and rural communities.”

Republicans, especially those seven House Members, have obviously taken quite a different tone, declaring the tax provisions, in particular, as a win for New Yorkers. Rep. Nick Langworthy (R-NY) offered, “This bold, sweeping legislation rewrites the tax code to deliver the largest middle-class tax cut in history. It eliminates taxes on tips and overtime pay, provides substantial relief for senior citizens, expands the Child Tax Credit to help families thrive, and lifts the arbitrary cap on the State and Local Tax (SALT) deduction that punished homeowners in places like New York.” The so-called “SALT Republicans,” GOP members from high-tax states, did score a major victory on the state and local tax deduction, raising the cap from $10,000 to $40,000 (although it sunsets and includes income limits). The SALT provision was a major sticking point for Rep. Mike Lawler (R-NY), who pronounced, “We secured meaningful SALT relief, locked in tax cuts for families and small businesses, and restored fairness for hardworking taxpayers across New York. This bill is a blueprint for how we can govern responsibly: provide real relief, restore security, and rein in out-of-control spending. The alternative was higher taxes, fewer jobs, and more economic pain. I voted to protect my constituents from that, and today, we got it done.” 

Early polling shows the OBBB as fairly unpopular, but so much depends on the spin battle over the next few months. Republicans insist that the only people who will lose benefits—especially healthcare—are those engaged in waste, fraud, and abuse. Democrats are screaming that the sky is falling. Significantly, many of the most stringent parts of the bill do not go into effect until 2027: after the midterm elections. Will voters understand what the bill has wrought? Or will they think Democrats are crying wolf—again?

And how will New York respond? Past the rhetoric, the state has limited options to respond, especially as the numbers are simply huge. Much remains to be seen, but Assembly Democrats conferenced virtually to discuss a Special Session in response, but nothing concrete came out of Friday’s meeting, though there was discussion about different “revenue raisers” and possible funding streams, and loud concerns about the $2 billion in inflation rebate checks championed by Hochul. The indomitable Susan Arbetter has more here.

It is unlikely Hochul is interested in midyear cuts to spending or services and, indeed, has been working to increase New York State’s reserves just for such troubles. 

Nonetheless, she and her well-respected Budget Director, Blake Washington, have been ubiquitous in trying to get out the message—and the blame—about where the cuts originate. They warned of a “destabilized” state health care system while adding that they are waiting on more detailed information from the Congressional Budget Office before deciding on the best approach to deal with imminent cuts.

What is clear is that the most significant immediate impact is on those enrolled in the Essential Plan, a state insurance program that relies entirely on federal funding and could see as many as 1.5 million New Yorkers removed from the program by 2027. Most residents insured under the Essential Plan are classified as lawfully present immigrants; around 500,000 will be moved onto state Medicaid rolls, while roughly 225,000 will become uninsured. 

Various hospital estimates also point to an additional 1.2 million residents losing Medicaid coverage under newly imposed work requirements for able-bodied adults, while health care providers are decrying the loss of provider taxes that help boost hospital reimbursement rates, representing an additional revenue loss of nearly $2 billion in the coming year. 

Other costs will include at least $500 million over the next few years to train staff with the state Department of Health and those at the Office of Temporary and Disability Assistance to calculate new eligibility for federal programs, including Medicaid and the Supplemental Nutrition Assistance Program. Republicans say these work requirements will mean many folks will transition to private insurance as they get jobs. We shall see. They also point to New York’s mind-blowing error rate of about 14% on SNAP benefits, emphasizing the need for these changes.

Already, state budget officials are preparing to absorb a separate $750 million in cuts to Medicaid that will take effect this fiscal year. 

Nonetheless, Washington remained noncommittal on the possibility of raising state taxes, such as the tax on personal income, to backfill the $3 billion in cuts anticipated as soon as the next fiscal year. 

“There has always been a strong push from the Legislature to raise taxes to invest and to do new, exciting things. Rarely do they say, 'Do we raise taxes to fill in and to obfuscate for the sins of our colleagues in Congress?'” Washington said. “These are going to require some really challenging discussions in the next handful of months. … But there’s no taxing our way out of this; there’s no way the state of New York can finance what’s been foisted upon us.”

That may run afoul of New York City’s likely next mayor, Assembly Member Zohran Mamdani, whose allies in the Democratic Socialists of America are already mobilizing on his tax the rich promises.

Hochul also pointed out that this legislation was only a tax and spending bill and that the actual federal budget remains to be negotiated as Congressional Committees are working on appropriation markups now. That means New York State, currently in the unusual spot of having few native sons or daughters in senior positions and, in fact, very few majority members at all, is at the risk of another round of pain.

In New York City, the remaining challengers to Democratic nominee Zohran Mamdani are working to convince anyone who will listen—especially the city’s business leaders, funders, and each other, that they are the strongest candidate to defeat the newcomer. Mayor Eric Adams was in the Hamptons last week, where he called for Andrew Cuomo to drop out of the race in order to coalesce the anti-Mamdani vote around him. Adams told the gathered crowd, ”I don't have anything negative to say about Andrew. But you took it for granted. New Yorkers have five fingers. They love the middle one the most. You can't just think because of a name that you're going to be the mayor of New York City.” Cuomo’s team acknowledged the possibility that multiple independent candidates could end up splitting the non-Mamdani vote, but argued Cuomo is in the stronger position to win than Adams, as shown by Cuomo receiving 24,000 more votes than Adams did in the 2021 primary. To that, Adams replied, “Andrew, are you that level of arrogance?’ I'm the sitting mayor and you expect for me to step aside when you just lost to Zohran by 12 points? … You lost. They heard your message, and you lost.” 

At a recent news conference, former Governor David Patterson appeared with Republican mega donor John Catsimatidis to issue their own call for a narrowing of the primary field, saying, “As public polls and surveys are revealed over these coming weeks, it is my hope and belief that the other candidates still in the race will come to the logical conclusion that New York City needs the most effective leader to navigate what comes next and that cannibalizing each other's support will be doing a disservice to the millions of people who call New York ‘home.'" Patterson supported Cuomo in the primary election, but would not answer questions about who he thinks should drop out of the general, and Catsimatidis recently appeared with Adams in the Hamptons.  

-Jack O’Donnell

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