New York Note: State of the State and NYC FY26 Preliminary Budget

Governor Hochul Delivers State of the State Address

Last Tuesday, Governor Hochul delivered her 2025 State of the State address, laying out her vision for the year ahead. Highlights from the State of the State are below. The Governor will release her Executive Budget soon to formally begin the FY26 budget process.

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Affordability

• Cut taxes for 5 out of 9 tax brackets in NYS
• Roll out inflation tax rebate, totaling $3B in the form of $300 and $500 one-time payments, depending on income level and tax filing status
• Lift the State and Local Tax (SALT) deduction gap

Youth and Families

• Create a Coalition of Child Care to identify a responsible and sustainable path toward funding Universal Child Care
• Make school meals free for all students, regardless of income
• Double/triple the child tax credit up to $1,000 per child under 4 years old and $500 per child between ages 4 and 16
• Significantly increase the State’s support for youth sports and programming; support more than 100,000 new slots for children across a variety of programs

Public Safety

• Decouple the State’s discovery laws from speedy trials statute
• Expand the Crime Analysis Centers to increase data sharing between agencies
• Create a NYS Crime Analysis and Joint Special Operations Command Headquarters
• Introduce legislation banning those convicted of assaulting MTA workers or riders from public transit

Mental Health

• Address gaps in the standards for involuntary commitment
• Improve oversight of insurance companies to ensure that they are providing mental health coverage

Environment

• Develop new reporting regulations for the state’s cap-and-invest program by the end of 2025
• Increase the state’s use of nuclear energy, including the creation of a Master Plan for Responsible Advanced Nuclear Development to advance decarbonization goals

Housing

• Introduce a 75-day waiting period before private equity firms can bid on a one- or two-family home
• Propose $100M Pro-Housing Supply Fund to build out infrastructure for new housing
• Streamline the environmental review process for “modest” developments
• Stabilize Empire State Supportive Housing Initiative (ESSHI) and New York State Supportive Housing Program (NYSSHP)

Jobs

• Require businesses submitting notices of worker layoffs to disclose whether a layoff is related to businesses’ use of AI
• Expand support for healthcare training programs
• Make community college free for students pursuing associates degrees in high-demand occupations like nursing, teaching, technology, engineering, and more

Mayor Adams Releases FY26 Preliminary Budget

Last Thursday, NYC Mayor Eric Adams released the preliminary budget for NYC Fiscal Year 2026 (FY26), which will begin on July 1, 2025. The preliminary budget totals $114.5 billion and is balanced for the upcoming fiscal year. However, out-year budget gaps remain, with a $4.2 billion gap in FY27, a $5.4 billion gap in FY28 and a $5.1 billion gap in FY29. Notably, these outyear gaps are smaller than were previously projected which the Mayor attributed to cost saving efforts that cover the 4-year financial plan, including a re-estimate of anticipated costs associated with meeting the needs of asylum seekers in NYC.

The FY26 preliminary budget included new investments in that align broadly with the priorities outlined in the State of the City speech presented by the Mayor last week. Major investments included enhanced funding for health care, housing and supportive services for people with severe mental illness and those experiencing chronic homelessness; funding for education services focused on putting young people on pathways to employment; and improving quality of life through investments in parks and swim lessons and funding to add 5 cultural organizations to the City’s Cultural Institutions Group program (one per borough to be announced at a later date). In addition, the Mayor’s budget includes several economic development investments including $20 million for the NYC Economic Development Corporation for the upcoming soccer world cup and funding to facilitate the construction of new affordable housing on City owned land.

Although out-year funding gaps remain for the next 3 fiscal years, the Mayor proposed a significant tax cut for working class New Yorkers dubbed “Axe The Tax”. This proposal would eliminate the New York City Personal Income Tax for filers with dependents living at or below 150 percent of the federal poverty line, as well as lower city personal income taxes for filers immediately above that threshold too. This proposal will require state approval.

Over the next few weeks, the City Council will hold oversight hearings to review the Mayor’s preliminary budget. Following these hearings, the Council will present a formal response to the Mayor’s preliminary budget, likely in late March / early April. The Mayor will then present an executive budget, likely in May and the FY26 budget will be adopted by the Council in late June 2025.

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