House Budget Cuts Billions in Funding to New York

Earlier this morning, the U.S. House of Representatives passed H.R. 1 – One Beautiful Bill Act (215-214) sending the reconciliation package to the U.S. Senate for consideration. The 1,118 page bill, a comprehensive reconciliation bill aiming to implement major changes across tax policy, government spending, health care, agriculture, student loans, energy policy, among many other areas. It consolidates provisions from 11 House committees and uses expedited legislative procedures.

It is too early to tell at this time the total fiscal impact this legislation will have on New York state. The bill will likely be altered in the Senate somewhat and renegotiated with the House for a final vote. The bill is big and changes a lot of existing federal policies that New York state leaders have embraced and budgeted for in the current State Financial Plan. Many private businesses were also planning on receiving federal grants that may not survive the process.

A big area of concern for counties is the impact of large-scale federal funding cuts and eligibility changes in social service programs counties administer and are often required to finance with local tax dollars. There are also direct cost shifts from the federal government to state and counties in the SNAP nutrition assistance program. 

We have some preliminary estimates from New York state agencies on fiscal and recipient impacts in federally supported health and nutrition programs. The state is estimating that between 1.5 million to 2 million New Yorkers would lose their current Medicaid or Affordable Care Act (Essential Plan) health insurance coverage. The state budget’s fiscal impact could include an annual loss of $13.5 billion in federal Medicaid funds ($10 billion) and new mandated state spending of $3.5 billion. In addition, for the first time, the federal government would require states to pay for a share of federal nutrition programs costing New York up to $2.1 billion annually, with counties potentially on the hook for a portion of these costs.

In the context of federal Budget Reconciliation all actions are scored by their impact on the deficit, cutting spending reduces the deficit, increasing spending increases the deficit, and cutting taxes increases the deficit (net of any economic gains generated). The overall increase in the federal deficit is estimated at about $3.3 trillion over the next 10 years when all items are netted out. Interest financing that deficit would likely raise the net impact to $4 trillion.

In relation to Medicaid, the bill would reduce federal spending by about $900 billion over 10 years. All of these actions will have some fiscal and recipient impact in New York – estimates are provided if the state has provided them:

• Mandates community engagement/work requirements for certain Medicaid beneficiaries, modeled on TANF work rules (up to 1 million will likely lose their health coverage beginning in 2027)
  • Reduces enhanced federal funding (ACA enhanced FMAP) for states offering healthcare to individuals that do not meet certain immigration status, even if they are legally in the country. The federal reduction occurs even if no federal funding or resources are used to provide health coverage for this population. Negative fiscal impact of $1.5 billion annually for New York,
• Caps current health care provider tax arrangements, limits future use of these arrangements and tightens continued use of these arrangements.
• Tightens eligibility screening and verification (up to 500,000 will likely lose health coverage):
  • Requires more frequent address verification and removal of ineligible enrollees
  • Mandates citizenship or satisfactory immigration status verification for federal financial participation (FFP) in Medicaid/CHIP
  • Increases frequency of eligibility redeterminations for certain individuals
  • Restricts retroactive coverage under Medicaid and CHIP Requires stricter provider screening requirements.
• Removes “good faith” waiver for overpayment penalties.
• Prevents implementation of increased staffing standards for long-term care facilities before 2035
• Delays easing Medicare and Medicaid enrollment rules before 2035
• Limits spread pricing by PBMs (pharmacy benefit managers)

In relation to Supplemental Nutrition Assistance (SNAP), the bill reduces federal spending by $270 billion over 10 years:

• Expands work requirements for able-bodied adults, limits waivers, and narrows eligibility to lawful residents.
• Repeals SNAP-Ed nutrition education and reduces administrative reimbursements to states.
• Requires up to a 25% state match for program costs ($1.9 billion cost to New York)
• Increases current state/county cost sharing for administrative costs by 50% ($240 million cost to New York)

Other provisions of note to counties include:

Ways and Means (Cuts federal taxes by a net $3.8 trillion over 10 years)

• Tax Cuts: Extends or makes permanent 2017 Trump-era tax provisions (e.g., child tax credit, estate tax thresholds, business deductions)
• New Tax Breaks: Creates new exemptions for tips, overtime, student loan repayment, childcare, and MAGA savings accounts – (these are all temporary)
• Repeals Green Tax Credits: Eliminates tax credits for clean vehicles, home energy improvements, and renewables.
• Restricts Benefits for Undocumented Immigrants: Limits ACA subsidies and Medicaid access
• Medicare/Medicaid: Allows HSAs for Medicare recipients; tightens Medicaid eligibility and imposes work requirements.
• Fraud Provisions: Uses AI for fraud detection, reforms EITC, and tightens IRS data protections
• Debt Limit: Raises the federal debt ceiling by $4 trillion

Agriculture (net federal spending cut is $230 billion)

• Rescinds Inflation Reduction Act conservation funds.
• Increases commodity reference prices and adds base acreage eligibility for more farms.

Energy and Commerce (net federal spending cut is about $1 trillion between energy and Medicaid changes)

• Repeals major climate-related provisions from the Inflation Reduction Act (IRA).
• Expands fossil fuel development and streamlines permitting for pipelines, carbon, and hydrogen infrastructure.
• Preempts state AI regulations for 10 years; supports federal AI modernization and broadband expansion.
   

NYSAC will continue to analyze the impact on our state and counties and provide further updates as they become available.