Given the recent commentary on the condition of New York’s financial condition, I wanted to emphasize the importance Gov. Hochul attaches to ensuring the fiscal health of New York State. With unprecedented amounts in both total dollars and as a percentage of spending, New York’s reserves are at historic levels and the state is in a strong position to safeguard against potential economic downturns, unforeseen emergencies, or unexpected budgetary challenges. Most importantly, the governor has demonstrated a strong commitment to our financial future by adding to reserves.
Realizing the critical necessity of maintaining adequate reserves, the governor implemented a more strategic view of the state’s financial management. She quickly recognized that the peak revenue production years post-COVID were not sustainable and setting aside reserves should be prioritized. By making fiscal prudence a priority, the governor has enhanced the state’s financial flexibility to navigate the uncertainties of the global economy, mitigate potential risks, and continue providing essential services to its residents.
Specifically, to further bolster reserves, the maximum allowable balance for the Rainy Day Fund was increased from 15% to 25%, and the maximum annual deposit from 3% to 15%, of projected General Fund spending in the current year. While some call for all reserves to be placed into the Rainy Day Fund, that approach limits the state’s financial flexibility by imposing unnecessary constraints. The economic benchmarks that allow for the use of such funds once deposited have only been triggered twice since January of 2007 and represent an undue standard in scenarios where a mild downturn is a more likely outcome.
The current balance in principal reserves is just more than $19.5 billion, an amount equal to approximately 16% of projected Fiscal Year 2025 State Operating Funds disbursements. Just five years ago, that number was only $1.7 billion. Not only are the balance and percentage unprecedented, but it provides a foundation to build upon. To that end, the recently published Enacted Budget Report contemplates additional deposits to the Rainy Day Fund if conditions permit at the end of the current Fiscal Year.
Additionally, the governor has taken significant actions to reduce future tax burdens by reducing the outstanding debt our taxpayers will need to pay off. To this end, she has used one-time resources to finance critical investments in transportation, higher education, housing and protecting our environment. Within the past two budget cycles, more than $9 billion has been invested in those areas without incurring any additional debt.
In addition to setting aside money for the future, the Statutory Debt Cap remains an effective tool to manage New York’s debt burden, as evidenced by common debt affordability measures. The state debt-to-personal-income ratio has steadily declined to the lowest level since the 1970s, falling from 12% to 3.6%, the lowest level in 60 years. Also, the state’s debt burden has improved over the past decade, with debt outstanding rising only 0.1% from 2014 ($55.2 billion) to 2023 ($55.9 billion).
The state continues to proactively manage its debt burden by using PAYGO resources to replace borrowing over a multi-year period, which preserves debt capacity and provides debt service savings. As further evidence of the state’s fiscal health, our credit remains the highest in recent decades.
Part of ensuring New York State’s fiscal future is making the right investments in our people. The governor has focused on educating our young people as well as investing in their mental and physical health. As a result, the recently Enacted Budget included a significant investment in New York’s education system through historic school aid increases, investments in SUNY and CUNY, and increased resources devoted to health care and mental health services. These investments will pay dividends in the future by ensuring a healthy, well-educated, economically self-sufficient taxpayer.
As expressed in the recently released New York State Financial Plan, a downward revision of revenue estimates has contributed to projected out-year gaps. While the projected out-year gaps are a concern, financial uncertainty is not solely a New York issue. Future economic questions abound in neighboring Northeast states like New Jersey and Connecticut, as well as other states, which is why we have such a strong commitment to building and maintaining adequate reserves.
As New York moves forward, it’s imperative that we continue to remain vigilant and committed to maintaining a strong fiscal foundation. To that end, we must balance investing in vital programs New Yorkers depend on today, while also managing the state’s long-term fiscal condition. The proof is in our actions, as given the recent focus on building up our reserves, we have shown the governor’s commitment to our fiscal health.
Megna is the state budget director.
