Governor Kathy Hochul unveiled a $260 billion budget proposal for fiscal year 2026-2027 on Tuesday, marking an 8 billion dollar increase from last year’s executive proposal while rejecting calls from progressive Democrats to raise income taxes on high earners. The spending plan relies on strong Wall Street revenues and extends existing corporate tax rates to fund major expansions in childcare and Medicaid.
“Our revenue projections in the current year, thanks to the strength of Wall Street and a progressive tax code, have really provided an outsize level of returns to make the investments, particularly in child care,” budget director Blake Washington told reporters ahead of the budget release.
Childcare Expansion Drives Spending Growth
The budget allocates $4.5 billion toward childcare programs statewide, a $1.7 billion increase from current funding levels. The expansion includes a new “2-Care” program providing childcare for all 2-year-olds in New York City and $210 million to expand pre-kindergarten for 4-year-olds across the state.
The childcare push comes largely at the urging of New York City Mayor Zohran Mamdani, a Democratic socialist who has made universal childcare a cornerstone of his agenda. Mamdani now openly calls for tax increases on high-income earners to fund these programs, despite fiscal watchdogs warning that the city faces deficits in the next two fiscal years.
Hochul’s proposal represents a sharp departure from how she might fund such initiatives. “She thinks it’s a last resort to raise taxes on anybody at any time,” Washington said.
No Income Tax Hike, But Corporate Rate Extended
The budget proposal does not increase personal income taxes, marking a clear rejection of progressive demands to “tax the rich.” Instead, Hochul will extend the top corporate franchise tax rate of 7.25 percent, originally implemented under former Governor Andrew Cuomo in 2021 and renewed in 2023.
The decision continues Hochul’s pattern of tax relief initiatives. Her administration has delivered over $9 billion in relief since she took office, including middle-class tax cuts that took effect January 1, 2026. Those cuts benefit 8.3 million taxpayers earning up to $323,000 for joint filers, providing nearly $1 billion in total relief.
Hochul also announced a “no state income tax on tips” provision for the 2026 tax year, exempting up to $25,000 in tip income for hospitality and service workers. The measure mirrors similar federal provisions and targets workers in industries where tipped income forms a substantial portion of earnings.
The state’s child tax credit has expanded to up to $1,000 per child under 4 years old, more than doubling the previous $330 maximum. The credit benefits 2.75 million children across the state and phases in over the 2026-2027 period.
Medicaid Spending Jumps 11.4 Percent
Healthcare spending will see an eye-watering 11.4 percent increase in Medicaid funding, driven largely by federal policy changes. The federal government refused to continue subsidizing spending on certain Obamacare-era health care plans, forcing New York to remove approximately 450,000 people from its Essential Plan last year.
Hospitals warned they would face significant costs when patients without insurance seek care. “Absent any changes on the congressional level, you’re going to see an increase in uncompensated care especially,” Washington said. “Those hospitals will still provision the care, but they would do so at great cost, so we’re trying to bolster on the state side, providing some resources to them to do just that.”
The Medicaid increase aims to offset hospital losses and prevent a healthcare access crisis as uninsured patients turn to emergency rooms for treatment.
Federal Funding Cuts and Reserve Concerns
New York faces a $10.3 billion reduction in federal funding overall, according to the state budget office. The cuts add pressure to a state budget that has already drawn down reserves significantly.
The state maintains $14.6 billion in reserve funds, but Hochul raided them for $7 billion last year to pay off unemployment insurance debt owed to the federal government. The new budget does not contribute additional cash to rebuild those reserves, leaving the state with less cushion against future economic shocks.
Hochul has retained the option of raising taxes if Washington continues reducing aid to blue states like New York, though she has not indicated any immediate plans to do so.
Budget Negotiations and Political Dynamics
The executive budget kicks off weeks of negotiations with the Democrat-dominated state legislature, largely conducted behind closed doors. The state’s fiscal year begins April 1, though Hochul has deliberately blown past that deadline in recent years as a negotiating tactic. State lawmakers do not receive pay while the spending plan remains unfinished.
Last year’s budget was not finalized until May 8, 2025, more than a month late. How hard Hochul plays hardball this year remains unclear, particularly given she faces a Democratic primary challenge from her estranged Lieutenant Governor Antonio Delgado ahead of her re-election campaign.
Hochul has already chosen to avoid one major political fight. She will not pursue changes to the state’s controversial Raise the Age law, which restricts prosecutors from trying 16- and 17-year-olds as adults for non-felonies. NYPD Commissioner Jessica Tisch and many moderates argue the law led to a surge in violent crimes committed by and against teens in recent years.
Far-left Democrats and criminal justice groups preemptively dug in over recent months, signaling Hochul would face immense political blowback if she took on that fight this year. Her office confirmed to reporters late last week she would avoid the issue altogether.
Comparing Budget Growth Year Over Year
The $260 billion proposal represents a significant jump from the $252 billion executive budget proposed for fiscal year 2025-2026. That earlier budget included Hochul’s $9 billion Affordability Agenda, which featured a $2 billion Inflation Refund providing up to $400 per eligible New Yorker and universal free school meals saving families up to $1,600 annually.
The current proposal continues that affordability focus while adding substantial new spending in childcare and healthcare. The childcare expansion alone accounts for much of the $8 billion increase.
Minimum wage increases that took effect January 1, 2026, also factor into the budget’s calculations. Wages rose to $17 per hour in New York City, Westchester, and Long Island, and $16 per hour elsewhere in the state. Future increases will be tied to inflation via the Consumer Price Index for Urban Wage Earners and Clerical Workers in the Northeast region.
What This Means for New Yorkers
Families with young children stand to benefit most from the budget proposal. The expanded childcare programs, particularly the “2-Care” initiative for 2-year-olds in New York City, could reduce childcare costs that often exceed $15,000 annually per child in the metro area. The expanded child tax credit provides additional relief, though families should verify eligibility as the credit phases in over two years.
Service industry workers will see tax savings from the no-tax-on-tips provision when they file 2026 returns. Combined with the minimum wage increase, hospitality workers could see meaningful income gains, though the tip tax exemption caps at $25,000.
Healthcare providers will receive increased Medicaid reimbursements, though hospitals still face uncertainty around uncompensated care costs as the Essential Plan removals work through the system. Providers should budget for potential gaps in federal support.
Business owners and high earners avoid new income tax increases, though the extended corporate franchise tax rate of 7.25 percent continues for another year. The lack of new taxes may provide planning certainty, but the legislature’s progressive wing will likely push for revenue increases during negotiations.
Taxpayers across income levels should monitor the budget negotiations closely. The final spending plan could look substantially different from Hochul’s proposal, particularly if progressive lawmakers succeed in adding tax increases on high earners or if federal funding cuts deepen. The April 1 deadline may slip again, potentially into May, as it did last year.
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Hochul’s record-high $260B NYS budget proposal includes no tax hike for now | New York Post