New York fiscal experts said Thursday state leaders must identify savings as they prepare Gov. Kathy Hochul's next executive budget, which they expect will be difficult to negotiate to fill the void left by congestion pricing and multi-billion-dollar spending gaps. 

The Legislature passed a $239 billion budget in April — increasing spending by 7.8% amid high inflation and wage increases. But the state will face a large out-year spending gap, with more than $4 billion next year, expected to swell to a $16 billion hole by 2028. 

"Using some spending restraint, you can narrow the gaps over multiple years while still growing a budget every year but get yourself in an even stronger fiscal footing," said Patrick Orecki, the director of state studies with the nonpartisan Citizens Budget Commission.

Officials with the state Budget Division would not answer questions Thursday about how the state is preparing to deal with the $16 billion budget gap or how much the state needs to reduce health or education spending — its largest expenditures — to make ends meet.

“Since Gov. Hochul took office, New York state has passed three consecutive balanced budgets, invested billions in schools and health care and embarked on transformative infrastructure projects – demonstrating a commonsense approach to spending while allocating record amounts to our reserves for a ‘rainy day,'" Budget Division spokesman Tim Ruffinen said in a statement. "The governor and the Division of Budget are in the process of crafting the FY26 Executive Budget which will be released by the statutory deadline next January.”

The fiscal year 2025 spending plan — the largest in state history — did not increase taxes, gave $2.4 billion for services for asylum seekers and rollbacks for state employees under Tier 6.

State lawmakers largely rejected significant cuts to Medicaid programs and school funding in the governor's budget proposal — unsurprising due to the critical election year.

Instead, the state Health Department's Commission on the Future of Health Care is tasked to effectively rein in New York's $100 billion Medicaid program. The Rockefeller Institute and the state Education Department will continue to hold hearings this year to revise the state's outdated Foundation Aid formula, or the primary state aid allocated to school districts.

Experts with the CBC and Fiscal Policy Institute said state leaders kicked New York's spending woes down the road this budget cycle, and with steep structural budget gap on the horizon, state leaders will have difficult decisions to make.

Hochul's last-minute pause of congestion pricing in the city blew a $15 billion hole in the Metropolitan Transportation Authority's budget — a decision Orecki says will negatively impact the next budget negotiations.

"If there's a revenue replacement for congestion pricing... how you fill in that gap and allow the MTA to continue to do the work that they need to for a state of good repair on a system that millions of New Yorkers rely on — it's going to be difficult to balance all that," Orecki said.

The CBC and Fiscal Policy Institute agree congestion pricing must start as soon as possible, and is the best way to fill the gap.

"The state spends money in a lot of different policy areas [so] it does seem likely that a failure to do this will start to divert attention and funding from other great priorities that could help make the state more affordable," FPI senior policy analyst Andrew Perry said. "Whether it's childcare and education, housing or climate policy, there are a lot of spending priorities we think probably do run the risk of having funds diverted if this MTA fiscal crisis drags on."

The CBC held statewide budget briefing earlier this week.

Perry added the state must consider other revenue raisers, like permanently increasing taxes on the rich. Progressive Democrats back a tax on the wealthy, but Hochul and Republican leaders reject it — fearing greater outmigration.

New Yorkers who make over $25 million are paying a higher rate through 2027, which will add nearly $3 billion to the gap when it expires.

"We're seeing a state government that's sort of back to a pre-COVID status quo," Perry said. "We think there's ample room to discuss additional sources of revenue and additional services that might help make New York state more affordable for working and middle-income people."

The start of August puts the state closer to the release of next year's executive budget in January than this year's spending plan.