Governor Kathy Hochul delivers the 2025 State of the State Address, Tuesday, in Albany. (Photo courtesy of Mike Groll/Office of Governor Kathy Hochu)

Gov. Kathy Hochul laid out a $252 billion spending plan for the state’s next fiscal year — proposing cuts to taxes on the middle class, broad affordability-focused programs meant to get state money back into taxpayers’ hands and incremental progress on adjusting the state’s out-of-date school funding process.

Speaking to reporters and Albany legislative leaders from the state Capitol on Tuesday, Hochul said her proposal is meant to balance the needs of New Yorkers struggling with high rents, low incomes and the lasting impacts of high inflation over the last two years with the needs of a state facing record-high Medicaid funding requirements, aging infrastructure in need of repair and schools in need of investment.

“The truth is, many people continue to struggle,” Hochul said. “Nationwide inflation, the rising costs at the grocery store, sky high rents. Every month, working New Yorkers face difficult choices about how they stretch every dollar, and that’s why this budget is laser-focused on putting money back in New Yorkers pockets.”

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Money back in pockets

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Hochul’s proposal on Tuesday represents a 3.6% increase in state spending compared to the current year’s spending plan — and it’s significantly larger than her 2024 proposal that called for $229 billion in spending. The plan would leave $21.1 billion in reserves, a record amount for the state, and accounts for $6.5 billion in new tax revenue, up 6.1% from this year.

The state legislature often requests even more spending than the Governor’s proposal lays out – but Hochul said this year she and the legislative leaders are closer together than ever before on a spending plan.

“A lot of what we have to do does not necessitate a conflict with the legislature,” Hochul said. “We have our shared values, our understanding that we will work together to put more money back in New Yorkers pockets.”

In her plan, Hochul calls for an incremental change to the foundation aid formula used to calculate how much money a district should get per year from the state.

Hochul has backed away from a plan to change the law to allow cuts to individual district awards, and while pitching an additional $1.5 billion for school aid, has proposed that lawmakers change the formula to use updated poverty metrics.

“A vast majority of schools will receive more money than they would have without these slight adjustments to the formula,” Hochul said.

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Phone ban

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Another $13.5 million will be set aside specifically for a statewide school cell phone ban – every public district will be required to put together a bell-to-bell smartphone ban policy, and can approach the state for a chunk of that $13.5 million to implement the plan with equipment, training or other measures.

“Schools will have flexibility in how they want to implement this,” Hochul said. “Districts will decide how they want to store devices and how they will ensure compliance. Of course there will be exceptions for students who need their devices for medical reasons, to assist non-English language speakers and students with learning disabilities.”

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CDPAP funding

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The single largest chunk of spending the state has to budget for this year is the Medicaid program – state sponsored insurance programs that cover nearly half of the state population.

“The state share of Medicaid this year will be over $35 billion,” Hochul said. “Over the long term, we will need to take action alongside the federal government to manage this growth, which isn’t sustainable for New York taxpayers on its current trajectory.”

Hochul’s budget director, Blake Washington, said the state is taking action to cut down on malfeasance and misuse in the program.

“Responsible stewardship in this space means that we should not be committing resources to management organizations that are often shadowy, that would not exist but for the Medicaid program, with state taxpayer money fueling both mail campaigns, print campaigns, digital ads, all intended just to scare people, to mislead people,” Washington said.

Washington was talking about the CDPAP program, or Consumer Directed Personal Assistance Program. It’s a Medicaid-funded program that pays individuals for caring for a sick, elderly or disabled person who chooses them as the caregiver.

It’s ballooned to one of the largest and fastest-growing areas of Medicaid spending with a $6 billion price tag last year, and state lawmakers have asserted, with some proof, that its rife with abuse.

Not only are million-dollar fraud schemes between the companies contracted to operate the home healthcare payment program and caregivers, but these companies have paid significant chunks of money to lobby in Albany, including flying banner planes around the state Capitol, buying out billboards in the region and even sending letters to home care recipients urging them to ask their lawmakers to protect the program as it exists today.

The state is moving to transition the CDPAP program to a single fiscal intermediary –meaning only one company will handle processing payments from Medicaid to the caregivers, rather than the over 700 that currently do it.

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Other proposals

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In other areas, Hochul is pushing forward on the affordability agenda that has defined much of these early weeks in Albany – a combination of a child care tax credit bump, an ‘Inflation Rebate Check,’ a middle-class tax cut and a plan to make school meals free for all students will put about $5,000 back in the accounts of an average family of four in New York for an altogether cost of about $5.2 billion.

She’s proposed $1 billion to fill potholes in upstate roads, proposed a $6.4 million boost to the CHIPS program that helps local governments pave their roads, puts $100 million into a program to build and renovate community centers, and puts another $5 million into a temporary municipal assistance fund that accompanies the Aid and Incentives to Municipalities program that sends state money back to towns, villages and cities.

Hochul noted in her address that there is uncertainty about what the future of state finances will look like, with the change in leadership in Washington D.C. — although she did not name President Donald Trump, she said that the new administration’s calls to cut spending and especially cut federal payments into programs like Medicare and SNAP could blow big holes in the state budget that cannot be covered with state revenues.

She called on the state’s Republican members of Congress to advocate for a removal of the State and Local Tax deduction cap — the SALT cap was put in place in Trump’s first 2017 tax plan, meaning taxpayers could only cut $20,000 of what they’d paid in taxes to their local and state governments from their taxable incomes for federal purposes.

“Full repeal or no deal,” Hochul said.

These proposals are the starting point of a budget process scheduled to run for another three months — next the state legislature’s two chambers will advance their ‘one-house’ budget proposals, and Hochul will negotiate with legislative leaders to come up with a final spending plan.

While the budget is due by April 1, lawmakers regularly run past that deadline and fund the state government with temporary stopgap measures in the interim.

Last year they were almost three weeks late.