Like Schrödinger's cat, a deal for New York's state budget is seen as existing and not existing simultaneously.

New York Gov. Kathy Hochul announced on May 7 that the state had reached a budget agreement.

She was quickly contradicted by Assembly Speaker Carl Heastie.

In any case, the Empire State's fiscal 2026-27 budget is six weeks late and counting.

"There's something fundamentally wrong with this process," Heastie said. "It's like, 'I'm gonna only talk about policy and when I think the legislature is giving me what I want on policy, then we'll talk about money.'"

Heastie's frustration has been expressed by both participants and observers of the state's budget process: negotiations have been so policy-centric that the overall financial picture is sidelined.

Last week, the legislature passed a budget extender to hold over until May 18.

The budget, as it stands, looks similar to Hochul's executive proposal, with targeted increases in spending and no new deposits into the state's reserves.

The putative agreement Hochul announced May 7 was $268 billion, around $8 billion higher than her first proposal. It would be a $13 billion increase over the state's fiscal 2026 budget. That increase is far higher than the rate of inflation, according to Howard Cure, director of municipal bond research at Evercore Wealth Management.

The budget still includes a $1.5 billion investment in universal childcare, bringing the total allocation for childcare to $4.5 billion. The state does not yet have a plan for a permanent source of revenue for universal childcare, Director of State Operations Jackie Bray told the Citizens Budget Commission at a talk in April.

Hochul is still seeking reforms to New York's auto insurance laws. The state Senate and Assembly have proposed tweaks to this package, which Bray addressed with the CBC.

"We actually think the Senate's higher thresholds are good," Bray said. "We're concerned, of course, about the assembly's proposed wage and affordability requirements."

During budget talks, lawmakers have worked out an agreement to increase funding for police on the New York City subway, Hochul said. She's also pushing for a package of policies to protect New York immigrants from Immigration and Customs Enforcement.

The state is seeking to address the Medicaid cuts passed last year by redesigning its Essential Plan. The state has received approval from the federal government to roll back parts of its coverage, including for undocumented immigrants, so it can avoid penalties. But although the state received approval, Cure said, it's not yet clear whether lawmakers will follow through.

The budget will include a proposal to pare down environmental reviews for affordable housing projects, Hochul said. She also wants to push back deadlines in the state's 2019 climate law.

Hochul implied during her announcement on an agreement that she would scale back plans to expand pension benefits. Unions are pushing for changes that would cost the state $1.5 billion a year; Hochul and the legislature have not yet announced their new plans for the expansion.

One of the biggest factors in state budget talks has been New York City's budget situation. Hochul began budget season proposing billions of dollars of aid for the city, but not quite enough to fill its budget gap.

On Tuesday, Hochul and Mayor Zohran Mamdani announced plans to get the city new revenue.

Under the proposal, released as Mamdani announced his own budget proposal, the city would receive $500 million annually from a "pied-à-terre" tax on luxury second homes, and $68 million from a reduction to a tax credit for business owners.

Senate Majority Leader Andrea Stewart-Cousins, a Democrat as are Hochul and Heastie, told reporters she had not seen details of the agreement, but tentatively supports the package.

Many of the provisions will have no fiscal impact on the state, Fitch Ratings analyst Tammy Gamerman said. Hochul would defer New York City's compliance with the statewide class size mandate, for instance, and allow the city to save $1.6 billion in fiscal 2027 through deferring pension payments, neither of which affect state coffers.

"Many of these are undoing cost shifts that happened over time where the state had adopted a variety of different cost shifts for different things, like one is a public health program. There was a sales tax intercept," Gamerman said. "Some of these are being reversed. So those will increase costs to the state on an ongoing basis. But I think that the state has the ability to absorb that within its budget."

Fitch assigns New York state its AA-plus issuer rating, with a stable outlook.

Hochul's budget would contain no new deposits into the state's reserves. Observers like the CBC and Cure have criticized the state on this point.

In his interview with Bray, CBC President Andrew Rein noted that New York could lose $35 to $50 billion over three years of a recession, according to data from the Department of the Budget. The state has just $14 billion in its reserves.

"We have, for this year and next year, $15 billion more in revenue for just two years. Why [shouldn't] we be putting more of that money to protect [from a] recession?" Rein asked.

Cure noted that President Donald Trump's administration has directly targeted New York since retaking office, and that the president has made attempts to cut Federal Emergency Management Agency funding. This should further incentivize the state to fill its reserves, he said.

But Bray said federal cuts are a reason the state can't afford to save its revenue.

"If we were to stop, and just take the revenue we've got and put it in the piggy bank to buy down future risk, that would be absolutely, in the immediate term, impacting people's lives in a bad way," Bray said. "This is really the wrong moment for us to say to New Yorkers, 'You know what? We can't help fill the SNAP hole left by the Trump administration.'"

The budget is still developing. Lawmakers announced on Thursday that the agreement also included a 1% tax on New York City home sales over $1 million purchased with cash.

Plus, because the budget is so delayed, Gamerman said, the revenue forecast has improved by billions of dollars.

Overall, New York state's fiscal picture is strong, Gamerman said.

And although the state's budget is getting increasingly delayed — last year's was the latest in 15 years, and this year's is even later — it's not likely to be a credit concern, according to analysts.

Cure noted that late budgets aren't unheard of for New York. Former Gov. George Pataki once signed a budget in August. Andrew Cuomo pushed to get budgets signed on time, Cure said, but Hochul's tardiness is more like a reversion to the norm.

In New York's defense, Cure said, its April 1 deadline is one of the earliest in the country. Plus, there aren't too many consequences for failing to meet it.

"There aren't that many penalties in New York for having a late budget, as opposed to a place like New Jersey or Minnesota, where you have departments shutting down and you only have essential service workers working on it."

The state reliably puts out audits on time, Cure said, so it's not delaying financial information, either.

Gamerman said she doesn't consider New York's current impasse a major delay, nor is it a credit concern.

"When discussions go on for months and months, it does start to become more of an issue, and it can signal that the state is having difficulty reading consensus, making decisions around its finances," Gamerman said. "So at this point, it's not a concern."

The factors causing the delay, however, do create problems for transparency, good-government groups like Reinvent Albany and the CBC argue.

When the governor uses budget negotiations as leverage to force policy issues, as Heastie complained about, it allows her to sidestep the standard legislative process.

"If you had individual pieces of legislation for those topics, it would be open to more of a public discussion, with committee hearings," Cure said. "It's not fiscal issues that hold up the budget, it's these policy debates that are worked in within the budget, even though it's not really dealing necessarily with fiscal issues."