BUFFALO, N.Y. — New York is collecting billions more in tax revenue than expected, but a warning from Gov. Kathy Hochul’s budget director is raising questions about how long that financial boost could last and whether the state is prepared for a potential Wall Street downturn.
In an Oct. 14 letter to state agencies, Budget Director Blake Washington warned that the state’s tax collections have benefited from a strong stock market, driven in part by investments in artificial intelligence.
But Washington cautioned that a slowdown in those investments could cool the stock market and have an outsized impact on New York’s tax revenue.
The concern is that companies are spending billions of dollars developing AI technology, helping drive stock prices higher. If investors begin questioning whether those investments will pay off, a market downturn could reduce the tax revenue New York collects from investment gains and Wall Street earnings.
The warning comes as the state is already facing projected budget gaps in the coming years.
Republican state Sen. George Borrello, who serves on the Senate Finance Committee, said the potential risk highlights what he believes is a larger problem with state spending.
“We don’t have a revenue problem here in New York state,” Borrello said. “We have a spending problem. New York state government spends too much money.”
Borrello criticized Democratic leadership for increasing spending and argued that New York has become too dependent on Wall Street to support its budget.
He said a significant decline in revenue could eventually affect taxpayers and services across the state, including in Western New York.
“We rely too heavily on the market. And when that happens, people here in Western New York may see a cut in their services. They may see an increase in taxes,” Borrello said.
Democratic strategist Jack O’Donnell acknowledged the potential financial risk but said the warning should not necessarily be viewed as a political problem for Hochul.
O’Donnell argued that Washington’s letter addresses broader economic conditions rather than suggesting the governor’s policies caused the uncertainty.
He also said the warning is unlikely to be a major concern for voters heading into Election Day, with many New Yorkers more focused on their immediate financial challenges.
“Well, I think they’re more focused on their own, you know, more focused on putting groceries on the table, more focused on paying their bills, more focused on getting their kids to to school and getting them home safe,” O’Donnell said.
While the political implications remain uncertain, a major decline in tax revenue could force lawmakers to make difficult decisions about the state’s finances.
“And so, if there is a big dive, that’s going to have real repercussions, and legislators and the governor are going to have to make choices about what they fund and unfortunately, what they don’t fund,” O’Donnell said.
State Comptroller Thomas DiNapoli reported that tax collections through September were $7.3 billion higher than initially projected. However, his office also identified approximately $31.8 billion in projected budget gaps over the next three fiscal years.
New York has billions of dollars in reserves, but DiNapoli warned in July that those reserves have remained flat despite growing financial pressures.
Washington has directed state agencies to keep their upcoming budget requests at current funding levels, excluding one-time investments. Those requests are due Oct. 28.
Spectrum News 1 reached out to the Hochul administration to ask how the state is preparing for a possible decline in revenue and what it could mean for future spending. A response had not been received by publication time.
No spending cuts have been announced as a result of the warning.