On the Record with Andrew Rein, president of the Citizens Budget Commission

Andrew Rein, president of the Citizens Budget Commission, sat down with Blake Washington, New York State's budget director, for a fireside chat at a CBC trustee breakfast in midtown Manhattan. The discussion centered on Gov. Kathy Hochul's proposed $252 billion spending plan for FY 2027 — including the governor's resistance to raising taxes, volatility in the Medicaid program, and the need to put "guardrails" on New York City's public assistance spending.

O'Donnell & Associates was there for the discussion. This interview was compiled by Ralph R. Ortega, Vice President of Public Affairs, and was edited for length and clarity.

Budget Outlook & Sustainability

REIN: So talk to us about the budget outlook. What do you think? How sustainable is this budget? What do you think of those gaps and risks?

WASHINGTON: As you all know here, the state of New York's budget is predicated on the performance of Wall Street and how well we do. When Wall Street does well, New Yorkers do well. When we adopted the budget last year, we adopted it in a time when we had "Liberation Day" before the nation, and there was a lot of turmoil in the markets. Timing is everything. The markets were down 20%, so our revenues were projected upon that lower base. And so as you come through this year, the markets, as we've all seen, have performed beyond anyone's expectations. We had to forgo a few investments that the governor thought were key just to remove them from the budget to reflect current realities. So we were able to manage the budget even with a lower revenue base. We were in a good place — that helped us to get the swing of roughly $17 billion between two fiscal years. That's where we stand today.

So in this year's budget, there's some level of restraint. First and foremost, we have Medicaid and school aid, which are the main cost drivers of any state budget. With now a new addition — child care — one that the governor feels very strongly about, knocking down some barriers and moving that into the future. But then you get into the budget, and there's a bunch of other targeted things that the governor is trying to do to meet New Yorkers where they are in the area of affordability. That is sort of her North Star in guiding the Division of Budget and her entire executive team. We'll talk later about auto insurance reform — things that are absolutely essential to knocking down artificial barriers put up by state government so that people can thrive in their homes or in their businesses. We have a lot of volatility in Medicaid, a lot of changes coming out of Washington. We're going to have to grow into those over the years. We're watching it, and we're adapting as we go.

REIN: So starting to drill down on the different pieces. Let's look at the long term. We see a 2030 budget gap of $8 billion. Now that's been reduced by $2.7 billion of resources rolled, because we've had some good times. So you can say the structural budget gap is $15-plus billion — or you can look at it as $20 billion, if you assume the state is actually going to let those temporary business and personal income taxes expire like the law says they should. But looking down that road, what actions are being taken — or should be taken — to narrow those future gaps so we don't self-create a fiscal crisis?

WASHINGTON: Well, revenue obviously helps — it helps to forestall a lot of those hard decisions. But the governor, as she tells us every day, is that we always have to look at our current law programming and make sure that it works for New Yorkers, for the institutions we care about, and for our financial plan. The fundamentals are going to be really, really key in a handful of years. That means taking a critical eye on current law spending, particularly Medicaid, where federal participation is changing dramatically. It's going to create a lot of instability in the overall network, and the state has to be a force for good there — but at the same time, the state can't do everything. So what is absolutely essential? Is every single service we provide today essential? And if not, can we refine those so that we continue to support the base?

REIN: We have to figure out how to bring our current programs in line with our revenues over time. Strong revenues forestall us from having to take those actions today. The challenge, as we less generously put it, is kicking the can down the road. Those actions then become harder to take. Why not start right now to do more — shrink some of those problems so they don't become so big?

WASHINGTON: None of this happens by accident, right? We don't just fall off an apple cart and say, "Oh well, here's some revenue." This takes constant vigilance on behalf of the Division of Budget. We get our directions from the governor, and she sets the standard for the upcoming year. The directions we receive are about prudent fiscal management — looking at existing contracts, asking whether they're necessary. When we look at our debt, we have a Double-A-plus rating for a reason. It's because of a very intense and hands-on approach to how we manage debt. This governor has, by the way, authorized more capital and debt spending in her five years than any other governor — and those are transformative investments throughout the state of New York.

Spending Pressures: Energy, Medicaid & Green Mandates

REIN: What are the spending pressures you're going to see programmatically? One of the ones on my mind right now is what might be a political, across-the-aisle convergence on utility bills. We see Republicans saying there should be rebate checks, and Democrats wanting relief. What are the different pressure points on spending that we'll be watching during negotiations?

WASHINGTON: Medicaid is one to keep an eye out for. There are a lot of inflection points along the way — not just through the budget season, but throughout the rest of the year. That's one we always watch coming in when we start to engage with the Legislature. I think a high one would be the cost of energy, and how you can actually promote some level of affordability. Not all the things we do in state government have to be a rebate check. Sometimes you can change governmental rules to just fit the times and adapt to the realities before us, not how we wish them to be. So if you think about energy specifically, think about some of our green mandates in the state of New York that existed before the governor took office. Some of those things are very aggressive and well-intentioned. But when you start to look at the letter of the law and implement those items, you put undue pressure on New Yorkers. These are pressures the governor finds to be unacceptable. These are own goals — things that, while well-intentioned, we have to keep an honest dialog about and reform, keeping our eyes on the law.

REIN: The governor's position has focused more on the energy transition, but more and more on affordability and the economy to balance it out with decarbonization. So how would you handicap a rebate check for utilities in this year's budget?

WASHINGTON: It's hard to handicap, because I really want to see where the Legislature puts its priorities. It's sort of across the board. Obviously it's a big Legislature, big state — they have a lot of different needs. On some initiative to address affordability of energy, I think something would be included. I don't know if it's in the form of a rebate check specifically. Sometimes you can just reform regulations and provide for common-sense reforms of state law that could go a long way to relieve the pressures on consumers' pocketbooks today, while also relieving pressure on the industry that provides energy.

NYC's Fiscal Crisis & State Aid

REIN: Let's turn to the city's fiscal situation. How significant do you think the city's budget problem is, and what should the city be doing to solve it?

WASHINGTON: We never would want to minimize the problems of any jurisdiction in the state of New York. We have the city of New York, and then 57 other counties, and hundreds of other towns and villages — all of whom face these challenges in a given year. When we look beyond the city, a lot of other jurisdictions know what their inflows are, they know what their outflows are, and they adapt accordingly. Not to single out the city, but: what do you have on hand? What services do you provide? Do those services provide the greatest possible effect for New York City residents? Can they be refined to target the most needy among certain populations?

We all have big hearts. We all want to support the biggest possible social safety net. But in the city of New York, relative to peers, public assistance spending since the pandemic has increased by 50%. The rest of the state has decreased by 25%. There's a willingness to help the city of New York, and that's a wonderful, laudable thing. But your ability to help has to have some level of guardrails — to protect the city's fiscal needs and protect all the other things New Yorkers care about, public safety being at the top of the list.

If I was looking at the budget, I would say: what are the cost factors? Are they working to the best possible effect? How can we change it? How can we engage stakeholders right away to reform those things so that we can have an honest debate about what the actual gap is and what our path forward is? Revenue performance has benefited the city as well. The governor advanced substantial sums to the city in the last month and a half — starting with her announcement on childcare, which provides roughly $1 billion to the city of New York. Most recently last week, between some buying back to recurring expenditures and offering resources for youth intervention programs, another $1.5 billion over the two-year period. So just in the last month and a half, the governor has taken this problem very seriously.

REIN: I get asked this question literally every day: Is that enough? Do you think there's going to be more state aid in the budget once it's adopted for New York City?

WASHINGTON: It remains to be seen. The Legislature has a lot of views. The moment we provided for South Side investments in the state of New York, we provided a similar, smaller investment for the rest of the state. They have different cost pressures that are no less important. There are going to be a lot of other needs when you start to scratch beneath the surface.

And if every municipality looks at their budget in the same manner as the city does — with the same critical eye — and says, "Here's my recurring gap, I'd love to have it remedied in the current year through the state's help," that creates some moral hazard for us, and obviously a fiscal one as well. So it's a matter of balancing it out and seeing what the Legislature has to say.

Taxes, Federal Changes & Medicaid Reform

REIN: There's a rally in Albany to raise taxes. The mayor said if the state doesn't raise income or business taxes, he will have to raise property taxes and siphon reserves. You're a budget guy — is this a good budget contingency strategy, or do you view this as more of a political pressure strategy?

WASHINGTON: I'll stay out of the politics. But I'll say the governor, when she looks at taxation, this is not a box-checking exercise for her. She doesn't come to the budget and say, "Here are the policy priorities I care about — child care, school aid, a well-running Medicaid and hospital sector — oh, and by the way, I really care about socking it to New Yorkers with additional taxes." The governor believes that no New Yorker is dispensable, whether they make no money at all or lots of money.

She also believes that none of this is inevitable — that the performance and the wonderful things we have in New York State, funded by persons of higher income and by businesses, it's not inevitable. We're seeing shifts throughout the states, shifts to other states. For the governor, it's not a reflexive position to increase taxes. We need to have a serious policy debate about our relative position in the Northeast, our competitiveness, and divorce it from the politics of the day. Certainly on the property tax in the city of New York — before you do that, I'm certain this is not a go-to position of the mayor or the City Council. A lot of that will be worked out as they go forward.

REIN: This continued advocacy — even after the mayor has received aid from the state, and the governor saying she won't raise taxes — how does that continuing push affect the relationship at the executive and staff level?

WASHINGTON: This governor cares deeply about having a positive relationship with every executive in the state of New York. It doesn't matter the political persuasion. She does not lord over them. There was a time when that was a feature of previous administrations, where you would micromanage every single municipality in the state. She's not interested. She came from a town council. She wants people who seek elective office to be autonomous and to make decisions on their own, for good or for ill. Politics are what they are — people will say what they have to say. But when the rubber hits the road, is it the right public policy choice? Are we doing the best for New Yorkers? That's what guides today, not the politics. She will maintain a good relationship with the mayor no matter what the outcome of this is.

REIN: You said you're concerned about New York's competitive position. Given the revenues, why continue to extend the temporary business tax surcharge? Should we just consider that permanent?

WASHINGTON: We put it against certain critical services — school aid, Medicaid. The temporary surcharge was sort of pledged toward that, on a lowercase "p." There's no statutory link there.

REIN: I appreciate that clarification.

WASHINGTON: You could make it permanent. I think the governor's position for any number of taxes is that you always want to be looking at them on a periodic basis. Are they still working? Are they delivering the desired result? And if you can indeed bring them back, great. It makes for good decision making.

REIN: So — gaps. There's pressure on spending, on taxes, and now the federal changes. HR 1 is hanging out there. We have appropriations. We don't know what will unfold in terms of federal execution, as we've seen. Changes to Medicaid, SNAP, housing and more. Start with Medicaid. Help people understand the impact of reduced premium subsidies and participation requirements. What are you doing?

WASHINGTON: There's at least one good thing in HR 1, and it's kind of wonky. It relates to housing — our ability to leverage low-income housing tax credits for private activity bonds. It accelerates housing production. It's what the governor is excited about. We put another $250 million in the budget to try to prime that pump and keep the activity going.

The rest of it for the state, particularly in places like Medicaid, is going to be a bumpy ride. Once the law was passed, we realized that because of eligibility changes on income standards, there was a universe of roughly 400,000 people that would lose coverage as a result of the reforms. The governor has sought guidance from CMS to revert to an old Medicaid waiver so that we can continue to support the base — roughly 1.3 million New Yorkers that still get coverage under the waiver — and then using some of our accumulated balances to give a supply path to grow into these changes.

We know there's going to be volatility. We're all big boys and girls — we want to be able to adapt. That's been the dialog with CMS, and some of our congressional members are helping. There are 400,000 persons that would lose coverage. The state of New York is going to cover it on our own. We're talking $350 million per month. These are big, big sums. This is why the federal partnership is essential. Those 400,000 people are going to get services somewhere — it might be in the form of uncompensated care or a return to commercial coverage. That's going to become known over the next year or so. It has implications for the hospital sector, certainly not clinics. Beyond Medicaid, you go on to SNAP and more — eligibility pools that would also apply.

We have a partnership with our counties to assess persons' eligibility today, and everybody is gearing up to figure out what that looks like. States and counties will lose federal aid depending upon error rates. If a payment gets made to someone who is otherwise ineligible, it happens everywhere, but in some states error rates are higher than others. There's a proportional penalty if you don't meet certain benchmarks. County executives are very intent on managing that problem in a precise way, because nobody wants to lose money. They all understand changes are coming, but nobody wants an adverse impact on their own county budget as a result.

REIN: Let's unpack that. 400,000 New Yorkers lost coverage. You have $10 billion at $350 million a month that should be freed up. What's the status of that decision from CMS?

WASHINGTON: There's been a dialog with them overall. We're waiting.

REIN: It doesn't kick in on July 1?

WASHINGTON: Yeah, July 1st is the outer edge of it. Any deliberation with CMS under any administration just takes a long time. We're working on it. We're intentionally trying to get some decisions.

REIN: So it seems like if we free up the trust fund, we can cover those people for a little over two years.

WASHINGTON: The 1.3 million people that transfer back into the 1331 waiver — those are the ones you'll be covering for the next handful of years.

REIN: Thank you for correcting. 400,000 — we'll see what happens to their coverage and what happens in the state of care. We would for two-plus years cover the other people under the base.

WASHINGTON: We're having a dialogue with CMS. Can we do it jointly? Is there some other product we can work on together?

REIN: You added money in this budget for hospitals, for nursing homes. How much money was added to alleviate that pressure?

WASHINGTON: We have $750 million in the governor's budget for hospitals and nursing homes, and the reason we're doing that is there's just straight volatility in that sector. Hospitals in particular have already had a lot of pressure post-COVID. The governor wants to be a partner to make sure we can plug as much as we can, within reason. The nursing homes matter in that context, because there's a symbiotic relationship between hospitals and nursing homes — discharging and allowing hospitals to bring in patients that otherwise provide revenue. It's a very important investment just to keep that infrastructure.

REIN: This challenge from federal changes comes on top of a Medicaid program that was already expensive and growing at an unaffordable rate. You consolidated to a single fiscal intermediary for CDPAP. What is the next step? We have a real challenge in Medicaid spending growth.

WASHINGTON: If you look at the Medicaid program, one of the things we haven't done this year or the previous is add on to a lot of the benefits package. We get lots of bills in the Legislature every year to expand coverage for any manner of things. And when your Medicaid program is growing by 11% year over year, you have to stop digging. So the governor has been very intent on saying — we've gotten a lot of pressure on GLP-1s, the weight-loss drugs. How can we get that into the Medicaid program? They "only" cost $50 million — remember, that was two years ago. I said, guys, please don't do this. This is scary. And obviously the president acknowledged, everybody top-down said these were wonderful interventions for people that need them, but the cost to any state and the federal government are very, very enormous.

So stop the digging. Medicaid is one of the biggest things the governor has been very intentional on. Those decisions are tough.

CDPAP was an intervention that was well overdue, and the governor took all the slings and arrows for a year and a half on this just to reform a program that had grown by 1,300% in six years' time. A wonderfully intentioned program — intended for people with high complex disabilities who want to stay in the community. When it was first created, you had roughly 250,000 persons on it and it was wonderful. A state law changed, the net widened, and unfortunately a truck was driven through it. One of the things occurring was the Wild West — enrolling people of low acuity, providing services that are nice to have but not must-haves. The governor said, no, we're done with this. Let's have accountability in the program. Let's have a single gatekeeper reporting to the state of New York.

We saved over a billion dollars as a result. There's been some other consumer behavior shifting to different programs, but those are the things we're looking at very intently — to continue to provide reasonable barriers for entering some of these programs. Not to be heartless, not to hurt people, not to diminish access to care, but to really focus and refine state services to the people who need it most.

REIN: We need to look at home care generally. How much of that savings is being lost to increases elsewhere? Do you know at this point?

WASHINGTON: We're going to have a reporting period in just a couple of months from the managed care plans, as it relates to some of the shifting between products. We have a cushion built in to the financial plan. But we're aware of the shifting. When we look at some of these current law programs, it just defies expectations. The governor has said to our first state agencies — if it's the Department of State, OGS, or Medicaid especially — look at your programs. What are the reporting periods? If every three months your program is growing by 15%, hit the brakes. Did 15% go to deliveries and payment? If so, it will smooth out over the year. But if it's gone up 15% because of some exogenous thing, you've got problems.

In CDPAP, we were seeing enrollment of 3,000 people per month. Now we're down to 300 to 400 people per month. And it's not because we're running heartless — it's refining the benefit, making sure that people that actually need it, get it.

Auto Insurance

REIN: We agree on auto insurance and seek more reforms. Thank the governor for this. Pick one and sell.

WASHINGTON: For anybody that has a car, you see your bill — it's nutty. Through no fault of your own, you've seen your auto insurance go up multiples. A story in Newsday just a handful of weeks ago covered people on Long Island, particularly towards the Queens area. In the last five years, their auto insurance has gone up like 90%, which is insane. The reason it's that large is because of a lot of state laws that have been on the books, and nobody's had the courage to address them — and the governor has done so in this year's budget. On average, the state of New York pays $1,500 more to insure our cars than any other state in the nation. And it's because we allow for excess payouts for people at fault — sometimes under driving while under the influence of drugs or alcohol — still getting a generous payout. Having persons seek the deepest pocket through joint civil liability and sock municipal governments and the MTA with costs, even though they have nothing to do with an accident. Allowing organized fraud to occur and not addressing it in real time. There are nine different interventions the governor put in. You read them and it's like, "duh." The solutions are right there. Government doesn't always have to provide a check to drive results for New Yorkers. And that's what I'm very excited about.