Actually I realize now this is exactly how it's supposed to work.
Federal obligations (treasuries) are taxed at the federal level and are tax-exempt at the state level.
State obligations are exempt at the federal level and are (generally) taxed at the state level if it's for another state's obligations.
The EasyStep instructions are actually misleading, because box 3 on 1099-INT is not super relevant here. If you look at line 2 on IT-203 and compare the amount to your 1099's, you will see that it actually includes the interest from Federal bonds. Therefore, the answer to "Did you include interest income from U.S. government bonds or other U.S. government obligations on lines 2, 6, or 11?", in the IT-203 instructions, is "Yes", the interest from federal bonds is indeed subtracted from your federal income for the purposes of calculating federal tax under NY state law.
Whether you get to subtract it from New York taxes depends on your residency situation. For non-residents, since the interest was not from NY sources, it cannot be subtracted from NY income. So for the OP, the amount to enter would be zero for the state amount column. Residents would put the whole amount, since it meets the 50% asset requirement (which it obviously does as 100% of its assets are in the US government). I am not familiar with part-year residents (who use the same form as nonresidents) for NY, but NJ it would be based on whether you were a resident when the interest was received.
See also https://www.tax.ny.gov/pdf/memos/income/m95_4i.pdf.
