Gov. Cuomo during his budget presentation (photo: The Governor's Office)
Governor Andrew Cuomo unveiled his executive budget for the next fiscal year on Tuesday, centering his presentation around the threat to New York posed by the new federal tax code and possibilities for combatting it and other policies from Washington, D.C. The budget address came almost two weeks after Cuomo’s State of the State speech, at which he presented his 2018 policy agenda.
In both cases, Cuomo left unsaid key aspects of major proposals -- most notably on reforming the state’s tax code and instituting a congestion pricing scheme in New York City -- indicating that details would be forthcoming through imminent state reports and worked out in discussions with experts, stakeholders, and lawmakers. How the state will deal with those two issues are among a number of big questions unanswered after Cuomo set the table for the 2018 state budget and legislative session. (In the days after his budget presentation, Cuomo's Department of Taxation and Finance released a preliminary report on the federal tax reforms with suggestions for how New York can possibly blunt the impact and the "Fix NYC" group Cuomo empaneled last year released its recommendations for a congestion pricing program. These reports set the stage for public debate, Cuomo to shape his proposals, legislative hearings, and negotiations among state leaders.)
The state is facing a $4.4 billion budget gap. Even if the state adheres, as expected, to the 2 percent spending growth cap that Cuomo has implemented each year, there would still be a $1.7 billion gap to be reckoned with. The state is also expecting millions of dollars in federal cuts to state healthcare programs, though the extent is not yet clear as federal negotiations continue.
Also troubling Cuomo and legislators who will negotiate the new state budget is the recently passed federal tax code overhaul, ushered in by the Republican-controlled Congress and President Donald Trump, which severely limits the state and local tax deduction, disproportionately burdening many New Yorker taxpayers. These changes do not necessarily immediately cut into state funds, but they pose significant threats to the New York economy and could risk out-migration of middle- and upper-income New Yorkers, as Cuomo said when presenting his budget and possible ways to dodge the “economic missile” coming at New York.
The fixes, painted in broad strokes on Tuesday by Cuomo and elaborated on by his budget director Robert Mujica in a post-address session with reporters, include the implementation of a statewide employer-based payroll tax to replace some income taxes and opportunities for charitable contributions that would be deductible from federal adjusted gross income. Addressing the deficit would involved various cuts -- especially to transportation, social services and mental hygiene -- cost shifts, including to New York City, and more than $1 billion in revenue generated by new taxes and fees.
The proposed budget would raise total spending by 2.3 percent, including a 3 percent increase in school aid, a $769-million bump. This includes a $338 million increase in foundation aid, which supplements local funding for school districts to ensure students’ rights to a “sound education,” $50 million for high-needs “community schools,” and $15 million more for universal pre-kindergarten programs.
Also in Cuomo’s spending plan are a number of policy initiatives with little or no financial component, including the Child Victims Act, anti-gun, anti-gang and anti-sexual harassment legislation, electoral reform, and criminal justice reforms.
There is a great deal of policy and budget negotiation to come before the April 1 start of the new fiscal year. Here are ten of the outstanding questions:
1. How will Cuomo close the budget deficit if the Senate GOP is opposed to any tax increases?
The executive budget relies on a slew of new taxes to balance the budget including a tax on opioid manufacturers, internet sales, and e-cigarette products. It also proposes capturing the windfall coming to certain insurance companies -- who benefit from the new corporate tax rate under the federal tax overhaul -- by imposing a 14 percent surcharge on those gains, and the creation of a new pre-licensing course for beginner drivers which will cost $8 each.
“You can’t possibly get anywhere near where you want to be on education and health care unless you raise revenues. It’s just too big a deficit and the choice of cutting education or cutting health care, I don’t think is a place anyone wants to go to this year. So you have to raise revenue,’’ said Cuomo.
When asked by a reporter if he would approve the new taxes, Republican Senate Majority Leader John Flanagan, of Long Island, replied with a simple, “No.” How Cuomo will sell some or all of them to the Senate majority remains to be seen.
2. What will Cuomo’s congestion pricing plan actually look like?
Cuomo has said that he supports some version of congestion pricing, which would mitigate traffic congestion by charging fees to drivers entering the busiest parts of New York City and would generate revenue for the Metropolitan Transit Authority (MTA). While the governor alluded to some general principles, he also said in his budget address that he was waiting for recommendations from the “Fix NYC” panel, which were subsequently released. Cuomo indicated that he won’t be proposing tolls on the East River bridges, explaining that the system can be targeted differently.
“The technology exists, we have to define the zone, we have to determine the fees, we have to determine the hours, and it's literally an on-going spectrum of options. You can change the hours, different rates for different vehicles, different rates for different trucks, and you'll get that full report at the end of this week,” Cuomo said on Tuesday. “My point is, it has to be fair to all people in all industries. You have yellow cars, now black cars, green cars, blue cars, purple cars they all have to be treated the same. I don't want anyone saying they had a competitive advantage or this advantage because we put a surcharge on one versus the other.”
When Fix NYC released its recommendations, Cuomo said he will review them closely and "discuss the alternatives with the legislature over the next several months." He added, "There is no doubt that we must finally address the undeniable, growing problem of traffic congestion in Manhattan's central business district and present a real, feasible plan that will pass the legislature to raise money for MTA improvements, without raising rider fares."
3. What will the state tax code rewrite actually look like? Will a focus on the deficit and the tax scheme make almost everything else deprioritized?
On Tuesday, Cuomo announced the New York State Taxpayer Protection Act, but presented it as possible options, including restructuring the state tax code by shifting from an employee-paid system to an employer-paid system through a new payroll tax. There would be many details to work through in making such a change, as Cuomo indicated the state would not totally eliminate the personal income tax system.
“Restructuring the tax code is complicated, there's no doubt about it, but it's also simple at the same time,” said Cuomo. “Washington hit a button and launched an economic missile and it says ‘New York’ on it and it's heading our way. You know what my recommendation is? Get out of the way before it lands. They want to shoot at our tax code the way it was? We change the tax code and we change it in a way that thwarts their attack.”
On Wednesday the Department of Taxation and Finance issued a preliminary report highlighting options for the state. The administration would have to figure out how to convince employers to opt into the new payroll tax system if it wants to move forward with that reform as part of the overhaul. Designing that proposal and a new overall state tax system will be no small task, even if Cuomo could do so unilaterally.
Making up for the local property tax deduction will be more complicated, Cuomo acknowledged. Localities will have to find innovative ways to share services and cut costs. Governments can also potentially circumvent the cuts by setting up charitable organizations for education and healthcare, which taxpayers could contribute to in order to receive deductions.
4. How will the sexual harassment claim rocking the IDC impact budget talks over sexual harassment legislation?
Earlier this month, there seemed to be consensus in Albany that the issue of workplace sexual harassment must be addressed legislatively, both in government and the private sector. Republican and Democratic lawmakers in both houses acknowledged a need for comprehensive protections for women following a national outcry over the issue.
In his State of the State and executive budget, Cuomo called for consistent sexual harassment guidelines for all levels of government and said public funds should not be used in settlements. Furthermore, Cuomo proposed banning confidential settlements and said that any entities with business before the state would be required to disclose how many sexual harassment cases they have settled.
These proposals and the negotiations to come will also be informed by a recent claim by a former Senate staffer, Erica Vladimer, who told a Huffington Post reporter that in 2015 she had been forcibly kissed outside a bar by Independent Democratic Conference Leader Jeff Klein, her boss at the time. Klein will be one of the ‘four men in the room’ who decide what goes into the final budget bills at the end of March. He and members of the IDC have vehemently denied Vladimer’s claim, and Klein has requested an investigation by the Joint Commission on Public Ethics (JCOPE) while proclaiming his innocence.
Klein has continued to express support for pushing ahead with new sexual harassment laws. It is unclear how and when the investigation will unfold, or what effect it will have on the legislative negotiations.
5. Is there any real hope for bail and other criminal justice reforms Cuomo is seemingly prioritizing as a big-ticket issue this year?
Cuomo’s executive budget builds on last year’s passage of legislation to raise the age of criminal responsibility from 16 to 18 years old with a comprehensive package on pretrial justice reform. The governor’s plan includes a significant reduction of the use of cash bail, discovery reform to ensure that defendants’ lawyers have access to all evidence cited in a case, and speedy trial enforcement.
“These changes will build on the reforms enacted during my tenure as governor. Last year, we raised the age of criminal responsibility from 16 to 18, affecting thousands of young people who will have a brighter future,” he said.
Certain advocates called the governor’s bail, discovery, and speedy trial bills “good starting points for progressive reform,” but criticized the bail bill for its broad allowance of “preventative detention” -- when a judge determines that a person’s release would impede an investigation -- which would still require people to pay for their supervised release. Some also took issue with the speedy trial proposal, which they said does little to address structural problems created by New York’s prosecutorial readiness rule, which starts the “speedy trial” clock from the time of the prosecution’s declaration of trial readiness rather than from the start of the defendant’s case.
“The governor’s budget bill is a starting point and we look forward to working with the administration and the state legislature to push for the reforms necessary to make sure that in New York, as the governor noted in his State of the State speech, ‘Race and wealth should not be factors in our justice system,’” said Gabriel Sayegh, co-executive director of the Katal Center for Health, Equity, and Justice.
Bail reform has been a point of contention in Albany for years, and given how contentious the “raise the age” debate was during the 2017 budget negotiations, getting the Senate Majority on board with these ambitious criminal justice initiatives may be especially difficult for Cuomo. While the governor is known for pushing through his top priorities, it is not clear how much political capital he is going to put into seeing these reforms passed.
6. Will Cuomo and the IDC be able to get electoral reform of some kind passed?
Electoral reform groups rejoiced when the budget estimated that the implementation of early voting would cost counties approximately $6.4 million, though it stopped short of providing funds for the initiative. Early voting has passed the Democrat-controlled Assembly multiple times, but has been stalled by the Republican-led Senate.
The “Let NY Vote” coalition of grassroots groups applauded the governor in a statement. “This is a bipartisan, no brainer: New Yorkers should be able to exercise their basic democratic rights without unnecessary barriers. We are looking forward to negotiating with the state legislature to ensure early voting receives adequate funding," they wrote.
IDC leader Klein, whose group of breakaway Democrats forms a ruling coalition with Senate Republicans, has also said that early voting will be a priority this year, but expansion of voting rights is something Senate Majority Leader John Flanagan has so far not buckled on. Early voting is one of a handful of electoral reforms being pushed by Cuomo and other Democrats, also including same-day voter registration and no-excuse absentee voting.
7. What impact will Cuomo not calling special elections have on the budget process?
The days available for Cuomo to call a special election for the 11 vacant Senate and Assembly seats, to ensure that these districts have representation during budget negotiations, are quickly evaporating. While Cuomo could have called the special election as soon as January 1, he has declined to do so, having previously raised questions around ‘politicizing’ the budget process. There is a chance that if the two Senate seats -- previously held by George Latimer and Ruben Diaz, Sr. -- are filled by Democrats, it could shift the balance of power in that chamber.
The election may be held no less than 70 days after the governor’s proclamation, which means Cuomo has approximately a week left to have the seats filled before March 31, when the state’s $160-billion plus budget is due. Aside from the questions around Senate control, government reform groups and others have pointed out that New Yorkers in the 11 districts at hand do not currently have equal representation during budget and legislative business.
8. How will MTA funding play out?
In his executive budget, the governor did outline his plan for stabilizing the ailing transit system that serves the New York City area, but the fine print included swelling New York City’s responsibility for the MTA’s capital improvements, as first noted by Politico New York.
Citizens Budget Commission, an independent fiscal watchdog, termed the measures an “unjustified shift” of costs to the city. “The Executive Budget asserts the responsibility for funding New York City subway and bus capital improvements should rest solely with the City of New York, which would require a sevenfold increase in City capital contributions,” said CBC President Carol Kellerman, in a statement on the proposed budget. “In addition, the Metropolitan Transportation Authority (MTA) would be authorized to establish Transportation Improvement Districts within New York City that capture revenues from rising property values - without the City's approval. These proposals are an attempt to impose an onerous cost shift onto New York City residents and businesses, who already pay an estimated 72 percent of MTA dedicated taxes and subsidies.”
An unnamed state official told Politico that the state was reinforcing a 1981 law that already requires the city to fund its subways, a claim that has been called dubious by a number of experts. New York City Mayor Bill de Blasio will no doubt raise the question of MTA funding when he testifies at a legislative budget hearing in Albany on February 5.
9. Will Cuomo's pledge to continue all his economic development programs be scrutinized?
During previous budget negotiations, Cuomo faced little pushback for inclusion in the budget bills of his signature economic development programs, despite corruption trials and questions about their transparency and effectiveness.
“All the investments continue, all the upstate investments, all the projects continue upstate and downstate, economic development. We would have another round of our REDCs of URIs and Downtown Revitalization,” said Cuomo, referring to his Regional Economic Development Councils and Upstate Revitalization Initiatives.
Budget watchdogs, like CBC, noted that once again the governor introduced funding for programs without accompanying them with meaningful reform. “Despite a lack of tangible success, the Governor continues to propose excessive spending on economic development initiatives, including a $300 million High Technology Innovation and Economic Development Infrastructure Program and $600 million for a life sciences laboratory in the Capital District,” said CBC's Kellermann. “The Governor and Legislature need to adopt significant reforms to the State's economic development program.”
Senate Majority Leader Flanagan has vowed to push back this time, particularly against Cuomo’s Regional Economic Development Councils, which have been criticized for lack of transparency and favoritism. “I think there’s questions that should be rightly asked about the councils, their independence, what type of disclosure they should have to do,” Flanagan told reporters on Wednesday at the Capitol. “I guarantee you this, whatever is done will be done legally and in the full discourse publicly.”
Still, Flanagan made similar statements last year, and yet virtually all of the governor’s economic development projects were pushed through with little scrutiny during the budget process. What did not pass, were any of the contracting or transparency reforms that were being pushed by outside watchdogs or members of the Legislature.
10. Will Cuomo push for marijuana legalization?
The executive budget proposes funding a taskforce to examine the economic, health, and public safety impact on New Yorkers of marijuana legalization happening in neighboring states of Massachusetts, and likely soon, New Jersey.
Cuomo is a known detractor of the drug, though he reluctantly allowed the state to pass a limited medical marijuana program in 2014. It’s unclear what he will do with the data collected by the study, but his interest in looking at marijuana legalization appears to be in some small part a rebuke against the recent moves by the federal government to step up marijuana regulation and enforcement.
“Marijuana — things are happening. New Jersey may legalize marijuana. Massachusetts already has. On the other hand, Attorney General Sessions says he's going to end marijuana in every state,” said Cuomo, later adding. “It'd be nice to have some facts in the middle of the debate once in a while.”
Note: this article has been updated with some new information as it has been released since Cuomo's budget address.