Albany is moving through the familiar choreography of creating an annual state spending plan while it’s quite possible that whatever the leaders come up with will be blown to bits later in the year by federal cuts. 

Republicans in Washington are looking to cut fraud, streamline government and make the 2017 tax cuts permanent before they expire at the end of the year. To do that, they will need to pass deep cuts to the federal budget, including to Medicaid, education and transportation.

The financial pain is still theoretical at this point. Bill Hammond, senior fellow for health policy at the Empire Center, doesn’t believe the cuts are a certainty because the House and the Senate are not on the same page. 

“It’s not clear what Washington is going to do,” Hammond told Capital Tonight.  

Patrick Orecki, director of state studies at the Citizens Budget Commission (CBC), agrees, but urged the state to take some action now during budget talks.

“They need to at least prepare for the possibility of federal cuts by doing two things. First of all, setting aside some money right now while they’re making the budget for next year. We think at least $2 billion is absolutely possible,” he said.

The second task is to do the work of setting priorities. 

“It’s good to start thinking through that exercise now,” Orecki explained.

Ed Ra, ranking minority member on the Assembly's Ways and Means Committee, agrees with Orecki. 

"Democrats keep warning about thunderstorms while driving with the top down on the convertible,” he told Capital Tonight in an emailed statement. “The impacts of federal fiscal actions are speculative at this point, but it's prudent to be cautious and prepare for potential fiscal uncertainty. The Majority's actions speak much louder than their rhetoric."

But the Hochul administration is standing firm, promising to call the legislature back into session if and when cuts take place. 

“We have a statutory constitutional deadline to pass a budget,” Budget Director Blake Washington told reporters on Monday. “We want to deal with the facts as they are today, not what could or could be in two months from now. And that's what the plan is, to just to continue to engage with the legislature and address if there are any shortfalls.”

HEALTH CARE

In February, the House passed a budget resolution that directs the House Energy and Commerce Committee to make $880 billion in budget cuts over 10 years to many programs under the committee's jurisdiction, one of which is Medicaid. The Senate doesn’t have a target anywhere close to that.

Regardless of the specific numbers, New York is especially vulnerable to cuts to health care: In FY 2026, the state is expecting to receive $70.9 billion from Washington for Medicaid and the Essential Plan/Child Health Plus. 

It's an issue that will affect every House member. The group Medicaid Matters recently created individualized Medicaid fact sheets by congressional district. 

In New York, 7 million people out of a population of 20 million are Medicaid enrollees. The largest cohort are women and children. Seniors represent a far smaller group in numbers, but according to Bea Grause, president of the Healthcare Association of New York, they make up the greatest per capita spending. 

“Three-quarters of the spending in nursing homes (in New York) is Medicaid spending,” Grause said, which means any cuts will hit an already anemic nursing home sector hard. 

Advocates warn that facility closures, staffing shortages and Medicaid underfunding are creating “nursing home deserts,” leaving seniors and their families struggling to find care.

“There have been dozens of nursing homes that have closed in New York state,” Mark Olson, executive director of Shaker Place Rehabilitation & Nursing Center told Spectrum News 1’s Corey James. “What is happening is patients are backing up into the hospitals because they can’t be placed due to the lack of beds.” 

The Empire Center’s Hammond explained that the last time Congress and the Trump administration attempted anything like these changes was back in 2017 with the goal of repealing and replacing the Affordable Care Act. 

“The proposals on the table then…would have implemented cutbacks gradually, so that the first few years would have had a relatively modest effect on New York,” Hammond said. “So that’s a possibility here as well, that whatever they do will be phased in.”

But Hammond is scratching his head over why the governor opted to increase Medicaid spending by 17% in her executive budget in January, and why both houses of the legislature pushed that increase even further. 

“I do think it’s reckless for the governor and the legislature to kind of plow ahead with a budget that calls for a big increase,” he said. 

“I don’t see the justification for it other than politics. The health care industry is politically influential, and the governor wants them on her side when she runs for reelection.”

Hammond speculated that if the state needed to respond to federal cuts, the governor might ask all sectors to “take a haircut” – a flat percentage cut across the board.

CONSTRUCTION AND TRANSPORTATION

In FY 2025, New York received $2.4 billion from the federal government. New York State Department of Transportation capital funding this year is $4.8 billion, including Governor Hochul’s $800 million add. 

Mike Elmendorf, the president and CEO of Associated General Contractors of New York State (AGC-NYS) is worried about a few different issues, including the ripple effect of tariffs on the construction industry. In the immediate short term, though, Elmendorf thinks transportation funding is stable.  

“Within the existing program, we don’t expect them (the federal government) to cut the formula funds for road and bridges,” he said.  “That’s the lion’s share of money that we get for roads and bridge funding. That seems to be OK,” he said. 

Future funding is another story.  

There have been conversations among Trump administration officials about changing how the federal Department of Transportation disburses money for roads and bridges; officials are now discussing prioritizing communities with high birth and marriage rates, something that will not benefit New York State. 

Elmendorf is also worried about some of the big signature projects that New York depends on the federal government for, like the M.T.A..

“What’s going to happen with Gateway? What’s going to happen with the Kensington Project out in Western New York? No one really knows what they’re going to do, so I want to be careful about speculating out loud to the press not to panic people,” he said.

A major concern for Elmendorf is CHIPS and Science Act funding. 

“There’s been chatter about the CHIPS Act, and what means for Micron. That, in and of itself, is going to be a massive construction project and then there’s obviously a lot of indirect construction that’s going to pop up around it because you’re going to have to build out the infrastructure, transportation, social, environmental around that project.”

A more under-the-radar concern is around the U.S. government’s newly fraught relationship with higher education, specifically the larger colleges and universities in New York. 

“They are a pretty significant market generally for the construction industry,” he explained. “Columbia, Cornell, you know, you name it, right?  They always seem to be building something.”

Uncertainty is a headache that links all these issues, according to Elmendorf. Construction is an industry that relies on planning, and the new tariffs aren’t helping.

“I described it as the tariff hokey pokey, right? They’re on, they’re off, they’re this, they’re that, they’re aimed here, so in some ways, the underlying policies are problematic,” he said.

EDUCATION

Even with record-high education spending in New York state, this week the Berlin Central School District announced staffing reductions in next year’s school budget “in light of our fiscal circumstances.”

No cuts are more personally relevant to taxpayers than school staffing cuts. If those changes take place in midyear (unlike Berlin’s), they are especially disruptive to students and teachers.  

Luckily, it doesn’t happen often.

“Over the past few decades, there have only been a handful of scenarios where midyear cuts have been relevant or applicable,” said Brian Fessler, director of governmental relations at the New York State School Boards Association.  

In most of those situations, it was the federal government that came to the state’s rescue. That’s not the case now.

“I know we’re hearing from the administration that a lot of the main federal funding streams, Title I and IDEA (Individuals with Disabilities Education Act), are OK right now for lack of a better term, but I think that remains to be seen for FY25-26. Perhaps more relevant is the concern for state aid caused by federal funding reductions that would impact the state more broadly.”

In other words, while education may not be targeted directly by Congress, the state may have to backfill cuts to other areas, like Medicaid.

“With so many unknowns, it’s difficult to plan directly, and certainly we are still waiting on a state budget to fully lock in school aid numbers from the get go, but I think a lot of districts are focusing on where their federal dollars are, and what are the areas of their budget that might be most at risk if the state has to adjust to funding reductions at some point in the future,” Fessler explained.

RAINY DAY FUNDS

Currently, the state has about $20 billion in its rainy day fund, but according to the CBC’s Patrick Orecki, even if there are federal cuts, dipping into the fund isn’t a good idea. 

“About half of the state’s savings are in a statutory lock box that can’t be used except in a true economic downturn or in some kind of catastrophe,” he told Capital Tonight. “The other half, about 10 billion dollars, would be available but that really isn’t the reason that rainy day funds are there.”

The fund exists to deal with a one-time kind of shock. Cuts to federal funds are ongoing until a new president or a Congress reverses them. 

“You’re looking at a recurring cut, so you can’t really use a non-recurring resource like rainy day reserves for that,” he said.