Governor Kathy Hochul’s $260 billion executive budget has landed in Albany, and the wheeling and dealing is already underway. On this episode of From the Lobby, host Joanna Pasceri sits down with Jack O’Donnell, managing director of O’Donnell & Associates, to unpack what comes next. With state tax revenues up nearly $6 billion, Medicaid spending climbing another $4 billion, and New York City staring down a multi-billion-dollar shortfall, O’Donnell argues this could be a relatively peaceful — though hardly drama-free — budget cycle. From the governor’s bid to fast-track housing by easing environmental reviews to the upstate-versus-downstate fight brewing over child care funding, here’s the inside look at the negotiations shaping New York’s fiscal year.
Joanna Pasceri
Jack, you’ve often said there’s always a fight when it comes to the state budget. How tough do you expect negotiations with the legislature to go this year?
Jack O’Donnell
Well, there’s always a fight. And don’t get me wrong, there are going to be plenty of things to fight about, but I don’t know that we’re going to have a lot of big fights. I think the governor has been very conscious of where the state is, where the economy is, really in framing this budget. So much of what we usually fight about is not actually the dollars and cents, it’s the policy. And the budget is a little light on policy this year. I do think there will be push from progressives, from New York City, Mayor Zohran, to plus up the budget, to tax the rich and take that money and do other things. But the governor’s found some money and she’s delivering on a lot of things that the mayor cares about, that his coalition cares about. So there’ll be some sniping, but I think this is going to be a relatively peaceful budget.
Joanna Pasceri
One thing working in the governor’s favor is revenue. State tax collections are up nearly $6 billion from last year. You wrote about it in your memo this week. What’s driving that increase, and how much breathing room does it actually give Albany?
Jack O’Donnell
It definitely gives them room to turn around in. Much of this increased revenue, it’s about expectations. So much of the budget is the guess. I used to work for the state comptroller who used to say, do you know on April 1st how many Christmas presents you’re going to buy this year? Because that’s what budgeting really is. The thing that New York has, which is a lot like Christmas, is Wall Street. And every year Wall Street bonuses come in for the folks there, and they continue to be very robust. And the taxes on those bonuses, on the good year that Wall Street had and appears to be heading into again this year — that’s where most of this additional revenue is coming in. I think the forecast also originally predicted sort of deeper harm from the president’s tariffs. We saw this budget that we’re living under now came in right around Liberation Day when the president imposed all those tariffs. He has subsequently walked away from many of those, or circumstances have changed, and as a result there’s a little more money now. There’s still some gaps in those out years for the state, problems with health funding, some real tricky, sticky wickets, as they say, but enough revenue to really get through this year and presumably next without many new taxes.
Joanna Pasceri
At the same time, federal funding is down roughly $10 billion, including some cuts to Medicaid. Yet the governor’s Medicaid budget still increased by $4 billion. Can New York keep spending at this pace?
Jack O’Donnell
Yeah, $4 billion, another 11%. Medicaid has almost tripled in, I don’t know, 17, 18 years. It is incredible what the state is spending, and it makes a lot of us very nervous. But that said, that’s the political climate we live in. And overall, there’s definitely some shifting around to make up for federal cuts, at least the ones we know about so far. In the past we have heard from the governor, and we have certainly heard a lot in the past and again this year from budget watchdogs, that that kind of spending and that healthcare spending is not sustainable. The governor last year did appoint a panel to look at this. My suspicion here is that the governor and the legislature want to get through an election year, and then next year we’re going to see more of these Medicaid redesign task forces, or other things to kind of look at how healthcare spending is driven and how it’s increased. One of the smaller things kind of tucked into the governor’s budget — and something that we’ve worked on, and that the University of Buffalo here is a worldwide leader on — is using AI and using that technology to really get at some of the drivers of increased cost in health care. It looks like a small investment from the state in that today, but maybe that’s something that scales up, that helps us deal with this over the next couple of years.
Joanna Pasceri
In your latest Monday Morning Memo, you mentioned the governor’s proposal to exempt certain housing projects from environmental reviews to speed up development. How will this attempt at deregulation go over with the legislature?
Jack O’Donnell
This is one of the bolder proposals we’ve seen from the governor here. I think that the housing crisis across the state is acute enough, and there are enough pent up frustrations around building and those investments, that this has a chance. But at the same time, there is a very strong, loud, robust environmental lobby in New York, which is how we got to a lot of these regs in the first place. Nobody sat around and said, oh, we should slow down these projects just to have fun. They said, we need to slow down these projects because we need to really think through what we’re doing. And we’ll definitely hear some loud voices from the legislature saying that’s still important. That’s one of the places we’re going to have some battle lines being drawn.
Joanna Pasceri
Child care is at the center of her affordability agenda, but a lot of the funding is directed to New York City. Will this create some pushback from upstate lawmakers?
Jack O’Donnell
Absolutely. I think folks across the state, whether they’re upstate or on Long Island or in the New York City suburbs, are always very cautious to see any of their tax dollars go into the New York City government. That’s partially why some people live in the suburbs or live in other places. There is some concern around that, but it belies the fact that New York City is actually ready for this. New York City has a new mayor who ran on this. The governor is talking about sharing those resources and those investments in upstate, making sure the universal pre-K is expanded to the rest of the state. And frankly, a lot of that is around the logistics. New York City is one unified school district, even if that is a bit unwieldy in and of itself. And so it’s a lot easier to move some of these innovations forward. Some of it’s just logistics around buildings and, you know, are they prepared for 4-year-olds and 3-year-olds in parts of upstate? The idea is to get there, and the idea is to make sure that some of these additional services like pre-K are getting to the rest of the state. But yeah, it’s going to put a couple people’s noses out of joint.
Joanna Pasceri
Well, speaking of New York City, we did hear some bad financial news — a more than $2 billion shortfall this year, $10 billion possibly next year. How concerned should the state be, and is Albany going to have to step in here?
Jack O’Donnell
Yeah, that’s a lot of money. One of the things we didn’t hear from the governor or see substantially addressed in her proposal are urban centers. Obviously the new mayor with really ambitious goals has got to be concerned. It’s going to lead more fuel to his drive to tax on the wealthiest New Yorkers. But upstate cities are struggling too. The city of Buffalo is talking about a $24 million deficit this year, double that perhaps or more next year. Rochester, Syracuse, Albany — a lot of these places are facing those same strains. And so I expect we’ll see some of these additional proposals from the legislature when they respond with their own proposals about further aid, further investment for struggling municipalities.
Joanna Pasceri
The deadline is April 1st to have a state budget in place. So the key question, based on what you’re seeing now: do you expect an on-time budget this year?
Jack O’Donnell
As I said, I think this is mostly a cooperation budget. But at the same time, I live in the real world and I work in Albany. And any hope for an on-time budget sort of goes with my hope that the Sabres are going to win the Stanley Cup this year. So it is certainly possible, and optimists like me like to think about things like that. But I wouldn’t be planning any family vacations for early April.
Joanna Pasceri
Got it. Well, we’ll be watching how all of this unfolds and sharing more of Jack’s insight in this week’s Monday Morning Memo. So, Jack, always great having you from the lobby.
Jack O’Donnell
A good conversation. Thanks, Joanna.
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