New York's fiscal leaders on Tuesday said they want to steer clear of increasing taxes and rolling back increased state funding for education and health care services as they prepare to combat a $4.3 billion budget deficit next year.

State budget Director Blake Washington led the earliest spending talks Tuesday at the annual quickstart budget meeting — which includes Senate, Assembly and state Comptroller's office staffers — to reach consensus on the state's updated financial estimates. The state Budget Division is slated to publish updated revenue and spending estimates Wednesday on its website. 

"It helps to kind of get our creative energy moving so we are not caught flat-footed when the executive budget comes out in January," Washington said at the start Tuesday's meeting held in the Capitol.

Washington is focused on maintaining state spending on education, including fully funded school foundation aid, increased funding for health care infrastructure and mental health services.

He says Gov. Kathy Hochul does not plan to roll back new investments in school foundation aid, support for hospitals or mental hygiene to make up for the shortfall. 

"We want to make sure we preserve all the things we are about and all the things New Yorkers have come to expect out of this administration," he told reporters after the meeting. "In the last couple of years, we made some historic investments in school aid, health care infrastructure, mental health... we want to make sure we preserve that spending and preserve those services, but also at the same time, acknowledge our receipts are not matching our spending. So we have to take a scalpel and try to figure out ways of maintaining those commitments and protecting things we care about. That's sort of our task coming into the next budget."

Officials commenced budget plans Tuesday as members of Congress consider a measure to avert a potential government shutdown this weekend and Hochul prepares her executive budget, which directs much of the year's legislative agenda.

The Budget Division estimates a $231 billion budget next year, and the multi-year budget gap now several billion dollars lower than expected. The deficit is expected to swell to $9.5 billion next year and $7.7 billion in Fiscal Year 2027. New York increased statewide spending about 20% in the first two years of the COVID pandemic following higher tax receipts, statutory tax increases and higher capital gains.

Washington expects school aid will likely grow with inflation, or just over 3%. The state's health care spending is expected to increase over 10%, largely from minimum wage increases and pay raises for home care workers allocated in the last budget.

The projected deficits will not effect the legislated pay hikes.

Washington was clear the state will not increase taxes on New York millionaires and billionaires to increase revenue.

"We're at our taxing limit for our personal income tax on high-income earners," he said. "From the get-go, Governor Hochul has been clear, to close this budget gap, she is not looking to increase taxes on any New Yorker. We think there's a way to forward to preserve the things we care about. We may have to show some restraint along the way." 

But DOB estimates show the state's economic and employment growth are expected to slow, with high interest rates forecasted to remain elevated.

It's also unclear how geopolitical factors like the Israel-Hamas war and influx of migrants to New York will saddle the state with unexpected costs, or if the federal government will assist.

"When looking at our state budget going forward, what the hell are they doing in Washington?" Senate Finance Committee chair Liz Krueger said about the mid-year budget update released Oct. 30. 

Krueger says she's interested in exploring changes to how sales taxes are collected in the state to maximize revenue, but declined to comment on specific line items in the future budget.

The senator, a Manhattan Democrat, says she's confident the Legislature and Hochul can work together to increase revenues and reduce state expenditures where necessary.

But the potential for a federal shutdown deeply troubles the Senate Finance Committee chair.

"I can't be emphatic enough about the impact," she said. "If we don't have federal money flowing... if suddenly, federal programs that we depend on, and particularly lower-income New Yorkers depend on, simply aren't there because the spigot turned off... I'm not sure this Congress knows how to come to its senses."

The state included $1.5 billion in the 2023-24 budget to help with the ongoing influx of migrants to New York from the Southern border. State officials Tuesday did not discuss specific funding for resources for asylum seekers.

It's unclear if the program will be continued in the next spending plan, but is expected to be a significant bargaining chip on next year's budget negotiating table.

Patrick Orecki, policy director with the Citizens Budget Commission, says the state needs to restrain spending. The organization recommends state leaders evaluate how to make the state's Medicaid program more efficient, revisit costly economic development programs and tax incentives and retarget school aid.

But it all comes down to incoming revenue.

"We'll have to keep watching how the second half of the year plays out," he said. "We still have six more months of the year to go to see how things shake out on both sides of the ledger. It still might get a little bit better, but no matter what, there's a big, big problem to solve in next year's budget already."

The state has about $19.5 billion in its reserve, or rainy day, fund. Hochul and Washington have said they do not intend to dip into the state's reserves to close 

The nonpartisan Citizens Budget Commission agrees the fund should not be used to close any deficits, urging lawmakers to find savings elsewhere. 

Good-government groups praised state budget officials for holding the quickstart meeting. The meeting, annually required by 2007 budget reforms made under then-Gov. Eliot Spitzer, was largely abandoned since 2011, or in the early days of former Gov. Andrew Cuomo's administration. 

"Achieving an early consensus on revenue projections is a crucial part of passing a timely state budget, because without an agreement on how much money the state has coming in, there can be no agreement on how much it has to spend," Reinvent Albany and the Citizens Budget Commission said in a joint statement Tuesday.

The meeting helps shed light on the Legislature's economic priorities, they said, and helps the state budget be passed on time, or by April 1.