ALBANY, N.Y. (NEXSTAR) — A report from the State Comptroller’s office warns that a recent federal reconciliation bill has left New York with budget gaps totaling $34.3 billion. According to the report, “State Fiscal Year 2026 Enacted Budget and First Quarterly Financial Plans,” the added costs from the federal cuts put the state in a similar financial situation to that of April 2009, the global financial crisis.
Comptroller Thomas DiNapoli called the law a missed opportunity for improvement, finding that it “adds complexity and creates inequities” by changing taxes and the social safety net in New York. “Low- and middle-income New Yorkers will see few long-term benefits while bearing most of the burden of the bill’s significant spending cuts to vital programs,” he said.
Passed by Congress and signed into law by President Donald Trump, the reconciliation bill known as Public Law (PL) No: 119-21 makes permanent many provisions of the 2017 Tax Cuts and Jobs Act, adds new ones, and changes eligibility and financing for public programs.
The nonpartisan Joint Congressional Committee on Taxation said these provisions will reduce federal revenues by over $5.1 trillion over the next decade, with the benefits overwhelmingly going to high-earners. Indeed, the comptroller analysis agrees with the conclusion that benefits disproportionately go toward those higher-income individuals and businesses.
Health
The State Department of Health estimated that 1.5 million New Yorkers would lose health insurance as a result. Governor Kathy Hochul’s office approximated an annual impact of about $13 billion in New York, plus an additional $8 billion a year in cuts to state health systems.
Budget director Blake Washington, estimated new Medicaid costs of $750 million in SFY 2026 and over $3 billion thereafter because of changes to Medicaid and the Essential Plan. The State Division of the Budget’s First Quarterly Update to the state’s FY 2026 Executive Budget Financial Plan, released in July, projected that costs to municipalities from the law will range from $3 to $5 billion.
But according to the Comptroller’s office, the state’s total budget gaps have grown by $7 billion since the release of the financial plan in January, even without considering the full reconciliation bill. Factoring in federal cuts for healthcare and food aid, totals could approach $47 billion.
SNAP
The comptroller’s office also warned about cuts to the Supplemental Nutrition Assistance Program in the bill. New work requirements could make close to 300,000 New Yorkers lose some or all of their food benefits. Cuts would also hurt the bottom of lines of local governments whose share of administrative costs for SNAP will go up from 50% to 75% under the bill, as of 2027. This will cost the state an extra $36 million, with another $168 million to be absorbed by counties and boroughs.
DEBT
The report says that state debt will grow by over 70%, from $55.9 billion to $95.1 billion in the next five years under the provisions of the bill. DiNapoli warned that it will force the state to approach its debt limit, with only about $503 million of wiggle room by 2030. Future projects will face delays and it will be harder to maintain existing infrastructure even at current levels.
PL 119-21 has lower individual income tax rates and eliminates personal exemptions, enshrining the TCJA. It permanently increased the standard deduction, which the Comptroller’s office said will benefit over 8.6 million New York residents. It also created new tax deductions for seniors, interest on new car loans, and overtime. Still, the report says they’re limited in scope and set to expire after tax year 2028.
SALT
For example, the law permanently limits the itemized deduction for state and local taxes to $10,000. But for tax years 2025 to 2029, that limit is temporarily raised to $40,000 for taxpayers making under $500,000. According to the comptroller’s report, 76% of the more than 1.5 million New York filers who claimed a SALT deduction in tax year 2023 went over that $10,000 cap. That year, about 10.8 million personal income tax returns were filed with New York State.
Under the temporary cap, close to 88% of those making between $100,000 and $500,000 will be able to fully deduct their SALT payments. Almost all taxpayers with incomes under $100,000 will also be able to do so.
Tips
The law allows a deduction of up to $25,000 for tip income, phasing out for those with incomes over $150,000 or for married couples filing jointly with incomes over $300,000. A New Yorker working in a tipped position like server, bartender, or manicurist and making $47,783 could be eligible for a deduction of up to $40,750, which means they’d owe just $703 in federal taxes for the year.
Combining the standard deduction and the tip income deduction could potentially eliminate income taxes altogether for those making $25,000 in tips but under $40,750. Meanwhile, according to the Comptroller’s office, workers earning similar median wages in non-tipped jobs—like home health aides and childcare workers—would owe at least $2,000.
Overtime, seniors, and childcare
New, temporary tax deductions for overtime pay are also available for single filers and married couples filing jointly, with limits and phaseouts just like the tip income deduction. It only applies to the “half” rate of “time and a half” pay—for every overtime hour, taxpayers could deduct only the amount above the regular rate. The Comptroller’s office said that roughly 20% of jobs in New York are “blue-collar” and qualify for overtime under the Fair Labor Standards Act.
For taxpayers over 65, a new deduction worth up to $6,000 per senior is available at incomes under $175,000. The IRS says that 90% of over 2.5 million elderly filers in New York could get at least a partial deduction.
The Child and Dependent Care Credit was also updated, increasing the share of expenses a taxpayer making below $105,000 can claim. But the maximum eligible for the credit stays capped at $3,000 for one kid and $6,000 for two or more. The credit is also nonrefundable, so the comptroller’s report argues that it will have little affect on low-income New Yorkers. The average cost of care for one child in New York at almost five times that $3,000 cap, as of 2023.
Reserves
The Comptroller’s office says the state should focus on increasing its reserve fund. The report notes that New York has had historically high reserve levels in recent years. At the end of SFY 2025, reserves totaled $21.6 billion, 16.2% of the state operating fund.
But according to the financial plan, those rainy day reserves will drop by $7.5 billion in 2026. That means the percentage relative to state spending will fall from that 2025 high of 16.2% to 8.5% in 2029, well under a 15% benchmark set by DOB.
Take a look at the report below:
Want more insights? Join Working Title - our career elevating newsletter and get the future of work delivered weekly.
