NY Budget Blues

Good morning from NYC where on this day in 1783, they celebrated Evacuation Day.

Headed into budget, New York State’s fiscal position has come into sharper focus as a result of the Division of Budget’s (DOB) “quick start” meeting with representatives of the Senate, Assembly, and Comptroller’s office all joining the DOB to discuss revenue and spending projections. There was a consensus that two of the State’s biggest expenses—school aid and Medicaid-related costs—would likely account for $140 billion of the projected $241 billion budget, a 0.5% increase compared to last fiscal year. The good news, however, is that a projected budget gap of $2.3 billion has been reduced to $1 billion as a result of higher than expected tax receipts. New York also continues to maintain over $21 billion in reserves, though lawmakers have been hesitant to dip into that fund without replenishing it. Overall, the outlook remains hazy as the DOB’s forecasts include a $6.2 billion gap in 2027, and a $7.1 billion shortfall in 2028. 

Casting an even darker shadow over these discussions—and those already dire projections—is the looming transition of power in Washington and concerns about how a Trump Administration and unified Republican control of Congress will affect the flow of federal funding to New York State. Commenting on which programs could face uncertainty, Budget Director Blake Washington offered, “When I think of the Medicaid program, when I think of assistance to our public schools, those are things that come top of mind.” New York is currently awaiting federal approval from the Centers for Medicare and Medicaid Services (CMS) for important revenue and coverage initiatives. Earlier this year, the State imposed a tax on managed care organizations (MCO) to generate revenue that would help offset increased Medicaid spending, but that plan exploits a CMS loophole that Trump’s nominee for CMS director, Dr. Mehmet Oz, is almost certain to close.

Given that reality, Governor Kathy Hochul has been pushing the federal government to approve the proposal before Trump takes office saying, “These are issues that we’ve been working on for months with the administration. They know we have a timetable. We know we have a timetable to get them done.” New York is also pursuing a new Medicaid buy-in program for working disabled individuals that would increase the resource limit tenfold and remove the upper age cap of 65, expanding coverage to roughly 12,000 New Yorkers. The State Department of Health recently opened up a 30-day public comment period, leaving a very narrow window for the Biden Administration to approve the change before the Trump team comes into power on January 20th. 

Meantime, New York has received federal approval for an amended tolling plan in New York City, known as congestion pricing, that is slated to generate billions in revenue to fund much-needed capital projects for the Metropolitan Transportation Authority (MTA). Hochul paused the implementation of the program earlier this year and has since amended the proposal, bringing the toll down from $15 to $9. The MTA board formally approved the change last week and the Federal Highway Administration gave the green light on Friday, allowing the plan to go into effect on January 5th. Trump and New York Republicans in Congress have vowed to kill congestion pricing, though legal experts have said they will have a tougher time if the program is implemented before the inauguration. The tolling plan also faces a pending federal lawsuit from Democratic New Jersey Governor Phil Murphy which, if successful, could delay the implementation long enough for Trump to withhold federal approval. 

Following Republican victories across the country, as well as significant inroads, if not as many wins here in New York, Democrats are looking for answers and a path forward. New York’s Lieutenant Governor, Antonio Delgado, offered his thoughts in an op-ed where he cited the Democratic Party’s deep-seeded neoliberal tendencies dating back to the Clinton-era, further exacerbated by the 2008 financial crisis, as the original sin of the party in the modern political era. Delgado wrote, “Faced with a global economic crisis, leaders of both parties worked to perpetuate a neoliberal order that people no longer trusted. Rather than create an agenda intimately tied to the People’s pain, the Democratic establishment helped rescue the institutions that had just pushed the economy to the brink of collapse, further cementing the public’s view that our political and economic system was rigged for the rich and powerful.” Delgado argues those decisions came home to roost this election cycle as Democrats were constantly defending the government and the financial institutions that the electorate has lost faith in while Trump promised to dismantle them.

Assemblymember Emily Gallagher, a democratic socialist, offered a complementary vision, arguing in a recent letter to her colleagues that rather than the electorate shifting to right as many commentators have suggested, it was a lack of ambition surrounding Democratic policy proposals that resulted in low voter turnout. Gallagher offered, “Mr. Trump’s performance was comparable to his performance in 2020. Unfortunately, the Democratic Party’s presidential candidate lost around 10 million votes compared to 2020. The cause of this result is a catastrophic lack of enthusiasm across the board for the party, its platform, and its candidate. It does not indicate that the electorate overall has shifted to the right. It indicates that our party failed to give our base a compelling reason to vote.”

Senator Liz Kruger, a long-serving Democratic State Senator from Manhattan, also wrote an op-ed where she succinctly summarized the cause of poor Democratic performance writing, “As Democrats pick ourselves up off the mat after elections, there is no time to lose in addressing the fundamental causes that led to the reelection of Donald Trump. It is now clear that, among the many issues that drove swing voters to Trump, the most potent are the affordability crisis facing a majority of Americans and a lack of faith in government to help.” 

Expect to hear more introspection from Democrats, especially in New York State, as Hochul hurtles towards her 2026 reelection campaign. Former Republican Rep. Lee Zeldin’s better than expected performance in 2022, paired with Hochul’s low approval rating, has led many in her party to worry that she could be in danger of losing to a Republican candidate. One Democrat publicly airing those concerns, and considering a primary challenge to Hochul, is Rep. Ritchie Torres. Torres said he has “made no final decision as to where my future lies,” but will be conducting a statewide listening tour to raise his profile among Upstate and suburban communities. Torres is not pulling any punches, recently posting on Twitter, “Kathy Hochul is the new Joe Biden. She may be in denial about the depth of her vulnerabilities as a Democratic nominee. A Democratic incumbent who is less popular in New York than Donald Trump is in grave danger of losing to a Republican in 2026—an outcome not seen in 30 years.” 

Republican Rep. Mike Lawler’s public crusades against Hochul on issues including immigration, affordability, and, most recently, congestion pricing, has led many to believe that the 38-year-old, second term Member of Congress is gearing up for a gubernatorial run of his own. Lawler likely benefits from Donald Trump’s selection of two other potential GOP candidates—Zeldin and Rep. Elise Stefanik—for jobs, a move that all but clears the path for Lawler to claim the GOP nomination if he wants it. In an interview last week with MSNBC, Lawler did not rule out a campaign for governor, but instead said, “We’re going to look at it for sure. It’s clear that one party rule in New York hasn’t worked and there needs to be more balance and common sense.” Lawler has emerged as a moderate Republican in Congress, positions that could help him in a statewide race, but that also raises potential liabilities with New York’s powerful Conservative Party. That said, as long as Lawler enjoys the support of Trump, he has a powerful ally who would certainly take a great deal of personal satisfaction in helping to turn New York red. 

In Washington, D.C., Trump is experiencing what passes as checks and balances after his nominee for Attorney General, former Florida Rep. Matt Gaetz, was forced to withdraw from consideration because he lacked sufficient support from Republican Senators to survive the confirmation process. Gaetz was not known for making friends during his time in Congress while a House Ethics investigation into drugs and sexual misconduct with minors doomed his nomination from the start. Gaetz offered in a statement, “There is no time to waste on a needlessly protracted Washington scuffle, thus I'll be withdrawing my name from consideration to serve as Attorney General.” Sen. Kevin Cramer (R-N.D.) said he was “grateful” that Gaetz stepped aside while Senator Susan Collins acknowledged, “certainly there were a lot of red flags.” Trump wasted no time replacing Gaetz, nominating former Florida Attorney General Pam Bondi to serve as AG. A controversial figure herself, Bondi will face much less push back, if any, from the Senate GOP. 

On a related note, House Republicans, in adopting their rules for the Chamber, have agreed to raise the threshold of members needed to oust the Speaker of the House. (See Gaetz, Matt)

Congress will return to its lame-duck session next week with only 18 days to advance a slew of must-pass legislation. The short-term Continuing Resolution (CR) passed by Congress earlier this year expires on December 20th, and Speaker Mike Johnson (R-La.) has said he wants to pass another CR, kicking the full-year funding fight into the next Congress when Republicans control both Houses. The plan has potential drawbacks for the GOP given Johnson will once again have a razor-thin majority, including the possibility of locking Congress in a funding fight for the first months of 2025 rather than advancing Trump’s legislative agenda. The Pentagon and defense hawks in the House have also long been averse to CRs, citing the potential impact on military readiness.  

Congress is also under considerable pressure to advance additional disaster relief for communities across the Southeast, though leadership in both Chambers appears to be in agreement on the need for increased aid. The White House sent Congress a bill that would authorize nearly $100 billion for the Federal Energy Management Agency (FEMA) and the Small Business Administration’s disaster loan program, which President Biden has said has “completely exhausted its funding.” Lawmakers must also address the ‘farm bill’ before years-end, a major piece of legislation that sets agricultural policy every five years. Congress passed a one-year extension last year and appears poised to do so again this year. Senate Agricultural Chair Debbie Stabenow (D-Mich.) released a draft bill text last week and may attempt to force a floor vote, but House Agricultural Chair G.T. Thompson (R-Pa.) pushed back on that course of action saying, “We can’t go past Dec. 31. So I think we’re ready for an extension.” 

The Senate is moving forward with the National Defense Authorization Act (NDAA) after Thanksgiving, hoping to formalize some key prioritizes of the tech industry regarding Artificial Intelligence and cracking down on China. A provision included in the NDAA would formally authorize the authority of the AI Safety Institute (AISI) within the Commerce Department. AISI, which is currently operating under a White House directive, would be tasked with studying the efficacy of AI systems which would serve as the basis for future AI policy. One of Senate Majority Leader Chuck Schumer’s main priorities has been establishing the U.S. as a leader in AI, and the agency’s role in outpacing China’s AI innovation has garnered bipartisan support. The incoming Chair of the Senate Commerce Committee, Senator Ted Cruz (R-Tx.) is an opponent of AISI, adding to the urgency for Schumer and his allies to get it across the finish line in the NDAA. Other AI initiatives tucked into the NDAA include a bill directing the National Science Foundation (NSF) to increase scholarship awards to study AI and quantum computing, as well as legislation to establish public computing technology to facilitate AI research. 

Congressional Leadership elections wrapped up last week with the biggest changes coming from the Senate GOP; Senator John Thune (R-S.D.) will be the next Senate Majority Leader after Senator Mitch McConnell (R-Ky.) steps down from his leadership post. Behind Thune, John Barrasso (R-WY) will serve as Majority Whip, Tom Cotton (R-AR) will serve as Conference Chair, Shelley Moore Capito (R-W.Va.) will be Policy Committee Chair, James Lankford (R-Okla.) will be Conference Vice Chair, and Tim Scott (R-S.C.) will serve as head of the National Republican Senatorial Committee. Leadership on the Democratic side will remain the same, with Chuck Schumer (D-NY) as Minority Leader and Dick Durbin (D-IL) as Whip. In the House, the top leadership positions will remain the same in both parties with House Speaker Mike Johnson (R-La), Majority Leader Steve Scalise (R-La), and Majority Whip Tom Emmer (R-MN) all being reelected without opposition, as were Minority Leader Hakeem Jeffries (D-NY), Minority Whip Katherine Clark (D-MA), and Caucus Chair Pete Aguilar (D-CA). 

The races for coveted committee leadership positions have proven more interesting, particularly in the House. On the Senate side, committee leadership positions are based on seniority, leading to a predictable slate of committee chairs. In the House, however, committee leadership decisions are made by the powerful Steering Committee (more on that later). The two-way race to lead the Energy and Commerce Committee, which has broad jurisdiction over everything from trade to healthcare, is between Reps. Bob Latta (R-Ohio) and Brett Guthrie (R-Ky.). Latta has the traditional experience required, having served on all six of the panel’s subcommittees, but Guthrie’s fundraising prowess and his support among senior House Republicans gives him a slight advantage. Reps. Ann Wagner (R-Mo.), Darrell Issa (R-Calif.), Brian Mast (R-Fla.), and Joe Wilson (R-S.C.) are all running to lead the House Foreign Affairs Committee which will have its hands full with the ongoing conflicts overseas. Issa and Mast are relying on their close relationship to Trump while Wilson has touted his co-chairmanship of the Ukraine Caucus. Wagner, who served as ambassador to Luxembourg under George W. Bush, is seen as the favorite. The Financial Services Committee Chair is also a four-way race between Reps. Andy Barr (R-Ky.), French Hill (R-Ark.), Bill Huizenga (R-Mich.), and Frank Lucas (R-Okla.). Hill would be the favorite on paper, but his political allegiance to former Speaker Kevin McCarthy serves as a net negative with many members of the Steering Committee. Rep. Sam Graves is seeking a waiver to allow him to continue to serve as the top Republican on the House Transportation and Infrastructure Committee, but that remains unlikely. Reps. David Rouzer (R-N.C.) and Rick Crawford (R-Ark.) are the other two candidates should Graves’ waiver plan fall through.  

Given the outsized role these leaders play in charting the course for the House GOP, it is no surprise that lingering, internal fights have spilled over into the Steering Committee as well. Many veterans of the Committee with ties to former Speaker Kevin McCarthy have found their seats being challenged by colleagues loyal to House Majority Leader Steve Scalise. McCarthy and Scalise were longtime rivals within House leadership, and those hard feelings have not yet faded. One of McCarthy’s most loyal deputies, Rep. Mike Rodgers (R-Ala.) is being challenged for his Alabama/Georgia seat by Rep. Barry Loudermilk (R-Ga.), who is more closely aligned with the Scalise camp. Similarly, Scalise’s colleague from Louisiana, Rep. Julia Letlow is running against McCarthy loyalist Rep. French Hill for his seat. Should they prevail, Scalise would further consolidate his influence over committee leadership. 

Rep. Laura Gillen (D-NY) has secured another victory, winning the annual freshman House office lottery and receiving the first pick of vacant offices.

Finally, farewell to the colorful John Prescott, a favorite of ours and a simply legendary figure in the Labour movement. He was the longest serving Deputy Prime Minister in British history. Current Prime Minister Kier Starmer said, “[Prescott] changed people’s lives and set the path for us all to follow” and described him as “a one off.”

Prescott rightly predicted that after his death, he would be remembered for punching a voter who egged him in 2001.

Of course, how could one forget Prescott downing a pint in 5 seconds, swimming 2 miles down the Thames to protest nuclear waste, or fighting Jeremy Clarkson on “Top Gear”?

From all of us at O'Donnell & Associates, Happy Thanksgiving!

See you next week,

-Jack O’Donnell