What the latest New York 2024 budget numbers tell us about the potential deficit

New York's financial outlook for next year got a little less gloomy this week.

Just a few months ago, officials estimated the state might have a $9.1 billion budget deficit to close in 2024 if the economy worsened and tax revenue shrank — a daunting gap that could force steep spending cuts unless the state raised taxes.

But with Gov. Kathy Hochul set to release her budget in just over two months, the latest number crunching has cut the potential deficit by more than a half, to $4.3 billion.

Part of the reason is a dip in expected spending. Midway through the fiscal year that began April 1, analysts shaved about $1.3 billion from the $229 billion anticipated total in their report on Monday. Their rosier outlook also includes higher income from business taxes and investments and a $3.5 billion surplus this year that will carry into the next budget.

What's next? Could deficit shrink more?

Budget observers on the right and left cheered the lowered deficit estimate, but drew different conclusions.

Nathan Gusdorf, executive director of the left-leaning Fiscal Policy Institute, took it as vindication of his group's skepticism about the initial estimate. He argued the gap could continue to shrink or "even become negligible," allowing the state to spend more on migrant aid for New York City or other "particularly urgent needs."

But Gusdorf urged the state and city to spend prudently, using "their bargaining power to maximize the impact of such funds by negotiating preferable terms for sheltering expenses and finding other cost efficiencies.”

Warning signs: NY headed for budget deficit? Warnings swirl as NY spending outpaces taxes

By contrast, Andrew Rein, president of the fiscally conservative Citizens Budget Commission, called for belt-tightening, noting that the state is "still far from out of the woods" with a $4.3 billion gap.

"Significant spending restraint is still needed to stabilize and strengthen the State's fiscal foundation," Rein said in a statement.

New York expects its two biggest expenses to grow next year: school aid is expected to rise by 3.8% to $35.7 billion, and Medicaid could jump by 10.5% to $30.7 billion, according to the mid-year budget forecast.

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What about the migrant shelter costs?

In a letter to Hochul's office about the budget update, Budget Director Blake Washington cautioned that the state might have to rein in aid to shelter migrants, for which it has so far committed $1.9 billion. He said that without federal money or policy changes to stem the arrivals, the state "can only shoulder this financial commitment for a limited duration" without jeopardizing school aid and other spending.

"As we move forward," he wrote, "outside of fulfilling our existing commitments, we must consider limiting our assistance to targeted interventions such as legal services, case management and efforts to connect migrants and asylum seekers to jobs, as opposed to sharing in more costly services such as indefinite stays in hotel rooms."

An immigrant advocacy group quickly denounced that warning, arguing the state has better ways to close a budget gap.

"New York has an obligation to fund programs and services that provide assistance to all working families, including the newest New Yorkers," Natalia Aristizabal, deputy director of Make the Road New York, said in a statement. "And if there’s a potential budget gap — which is now notably much smaller than anticipated — there’s an easy and very popular answer: tax the ultra-wealthy and corporations so they finally pay what they owe."

Chris McKenna covers government and politics for The Journal News and USA Today Network. Reach him at cmckenna@gannett.com.

This article originally appeared on Rockland/Westchester Journal News: NY's budget deficit estimate cut in half. What that means for 2024