Read original op-ed here.

The state budget director recently issued the annual “call letter,” instructing agencies to keep their budgets flat next year. The directive is similar to most prior years. What stands out this year, however, is the mounting urgency for the state to start taking significant action to close the fast-approaching budget gaps.

Next year’s projected $9 billion budget gap is massive, and it grows to $13 billion thereafter. Further, when the smoke and mirrors of using temporary funds to support ongoing programs clears, the state will have a whopping $22 billion structural hole. The sooner the state begins to restrain spending, the less likely the oncoming fiscal reckoning will require painful service cuts.

How did these gaps emerge? While Gov. Kathy Hochul wisely led the charge to increase reserves, the truth is the state used billions of one-time dollars from strong years on Wall Street, extraordinary federal COVID aid, and temporary taxes to boost spending it cannot sustain. These nonrecurring revenues helped balance this year’s budget and narrow future gaps, but they’ll eventually disappear, leaving gaping holes.

Also, spending is growing much faster than revenues. State spending grew at an extraordinary 9.0% annual rate over the past three years, and is budgeted to increase 5.2% annually going forward, driven by Medicaid and education aid, the state’s largest programs.

New fiscal risks also loom large. Costs for migrants will be both greater and longer lasting than the state budgeted. The budget already includes $1.5 billion for migrant costs over two years, but more is expected to be added. The state can’t count on Washington for migrant funding, which has been miniscule — a mere $135 million to date, enough to cover just roughly two weeks’ worth of costs for New York City. And other fiscal risks continue to build, such as a federal shutdown, a congressional budget deal that cuts expected aid to states, and the increasingly immediate costs of climate change and resiliency.

Yes, the gaps may shrink if tax receipts stay above conservative projections. Through the first half of the year, actual tax receipts exceeded forecasts by $1.7 billion. While this is good news, any narrowing of the gaps will still leave the state with a significant shortfall, as tax receipts are still expected to contract while spending grows.

To close gaps, the state should restrain spending growth, necessarily starting with its largest programs. State school aid should be better targeted to districts with higher-need students, instead of funneling billions of dollars to wealthy districts with strong local funding. In Medicaid, understanding and reversing rapid cost growth in long-term care and other areas can reduce costs. In “economic development,” the state should curtail — not expand — programs with dubious impacts.

Another round of tax increases or drawing down reserves should not be part of the package. Both are short-sighted and would likely damage New York’s long-term stability and economic competitiveness.

Recent temporary personal income and businesses taxes lifted New York’s combined tax rates to the nation’s highest. The state temporarily increased the top personal income tax rates in 2021 and business taxes in 2021 and 2023, and permanently increased a New York City-specific payroll mobility tax in 2023. While extending the temporary taxes may be tempting, it would make the state even less economically competitive.

Depleting reserves would reverse our progress over the past two years. Not only would the state be using rainy-day funds to close a budget hole of its own making, but draining finite reserves would just delay the fiscal challenges and leave us completely unprepared for the next crisis or recession.

New Yorkers will learn much more about the budget outlook in the coming weeks and months, but to start bringing budget stability back, the state should start tightening its belt now.