New York state Comptroller Tim DiNapoli says the state’s finances have stabilized after the years-long disruption of the COVID-19 pandemic, and along with the state Division of the Budget, is forecasting reduced budget gaps while pointing out that fiscal risks and challenges remain, according to a report on the budget his office released Thursday.

“New York state has taken positive steps to stabilize its finances with higher reserves and lower projected budget gaps,” DiNapoli said in a statement. “Still, the Executive and the Legislature face the difficult challenge of ensuring adequate funding for our schools, health care programs, and other critical needs while improving the state’s affordability."

The Division of the Budget (DOB) projects New York’s economy will slow considerably in the first half of 2024, growing by less than 1% while stronger growth is forecast for the second half of the year, but at rates below 2023 levels.

DiNapoli’s report said the state’s structural budget gap is projected to worsen over the next few years, as the DOB projects growth in disbursements to outpace receipts by four fold throughout the five-year financial plan period. 

The DOB projects a balanced budget for 2024-25, but a cumulative gap totaling $20.1 billion is forecast through 2027-28. School aid and Medicaid are the two largest general fund spending categories and their combined cost is expected to grow 4.7% by the 2027-28 budget.

Despite the gradual recovery from the onset of the COVID-19 pandemic, DiNapoli’s report says New York has yet to achieve full recovery in the number of jobs and workers and the DOB expects the state won’t return to pre-pandemic employment until the second half of 2026.

In addition, DiNapoli says the state’s years-long problem of outmigration of personal income taxpayers pose a risk to the New York economy and its revenues. The latest U.S. Census estimates show New York’s population declined by nearly 102,000 from 2022 to 2023.

The state has increased reserve funds in recent years, including statutory reserves that now total $6.3 billion and $13.2 billion set aside in an informal reserve for “economic uncertainties,” for a total of $19.5 billion, but DiNapoli said greater priority should be placed on building statutory rainy day reserves.

“The State must also continue to improve its readiness for future economic downturns. As COVID demonstrated, the unexpected can happen at any time, and we must ensure that our finances are strong enough to weather the next storm,” DiNapoli’s report reads.

DiNapoli said he is concerned that Gov. Kathy Hochul’s proposed executive budget exempts at least $160 million from the state comptroller’s contract oversight and from competitive procurement process. DiNapoli’s review identified an additional $1.4 billion in spending that will be distributed without a competitive procurement process.

The state budget is due on April 1.