Gotham Gazette

The Place for New York Policy and politics

What the State Budget Means for the City

Sen. Eric Schneiderman of Manhattan could have been celebrating on Monday. The budget deal reached over the weekend included two major policy victories for him: reform of the Rockefeller drug laws and the income tax increase on high-income earners, both of which he had been pushing for. But Schneiderman was subdued. "This is not a good news budget," he said. "Frankly, it is amazing there isn't more pain for my district than what we have in the budget now."

That might be the major story of this year's budget process: major cuts proposed by Gov. David Paterson -- hailed as fiscally responsible by some and bemoaned as draconian cuts to important programs by others -- were largely restored.

In fact, this year's $131 billion budget is $10 billion more than the budget Paterson proposed in December. It increases state spending by about 8 percent and includes $170 million worth of member items. This means that many of the cuts slated for New York City -- including ones that Mayor Michael Bloomberg said would have forced the layoff of thousands of public school teachers -- have been restored.

Observers attribute the relatively lavish spending to the influence of Assembly Speaker Sheldon Silver of Manhattan's Lower East Side, who wields far more influence and experience than Paterson or Senate Majority Leader Malcolm Smith. Silver bucked the push for fiscal restraint and pushed ahead with a budget much bigger than Paterson's proposed plan.


New Taxes and Fees

So, how painful will the state budget be for New Yorkers? It depends on who you ask.

Outside the Senate chambers on Monday, lobbyists remained perched and alert, ready to seize the ear of any legislator. They complained about taxes and fees contained in the budget and how they will hurt business.

The budget includes an estimated $8 billion worth of new or increased taxes and fees, among them an income tax increase on those making $200,000 or more a year. There will be a new surcharge on cell phones, an increased fee on some forms of driver's licenses, a higher cost to renew commercial driver's licenses, higher registration fees for some vehicles, and increased surcharges on gas and electric companies. Stores that sell cigarettes will have to pay the state anywhere between $500 and $1,000, and taxes on beer, wine, cell phones and some insurance policies will also rise.

One lobbyist desperately explained to a legislator how a new tax on alcohol almost certainly would limit the beer selection available in New York and damage small breweries. Some legislators gave the impression that there was still time to make changes. Even on Monday, with the budget seemingly finalized, Sen. Ruben Diaz of the Bronx made it clear that he was still pushing for changes. "We're still working on it," he said referring to the budget. "The people of my district should be very happy with me," he concluded beaming a grand smile.

Observers have wondered if Diaz or one of his fellow members of the dissident Democratic gang of three might vote against the budget and send the Democrats back to the drawing board. But the sense is that the Democrats are unified.

"Absolutely, said Sen. Neil Breslin of Albany when asked if he expected the budget to pass without resistance from fellow Democrats. Schneiderman responded similarly.

General Funding

A major victory for the city was the restoration of $328 million of Aid and Incentives for Municipalities funding to New York City. Paterson had proposed entirely eliminating New York's payment while keeping funding for other cities flat. Now New York City, along with the state's other cities, will have AIM funding restored to 2008-2009 budget levels. Bloomberg had said that he might have been forced to go ahead with major layoffs of city workers if all the cuts facing New York had been enacted.


The mayor had railed against proposed cuts to education funding and threatened that the cuts could lead to the layoff of some 14,000 teachers.

However, thanks to federal stimulus funds, the majority of education cuts have been restored, and earlier this week Bloomberg announced that he would likely not be forced to make the layoffs but might have to trim some non-teacher positions.

Geri Palast of the Campaign for Fiscal Equity said the budget "basically restores major cuts to the funding levels." Foundation aid for operating expenses will stay the same as it was in last year's budget. Increases in payments that were scheduled to be made to in-need school districts thanks to the Campaign for Fiscal Equity lawsuit will be put off for two years. The full payments that were expected to be made in four years will now be spread out over seven years, meaning that the full implementation won't be achieved until the 2013-2014 budget year.

The money had been intended to bolster school districts that had not received adequate funding and to help improve standards, including the quality of teachers. Those improvements will now be delayed for years. "All the things that had been laid out for the CFE money are now off the table," Palast said.

Palast said the CFE plans to send a letter to U.S. Secretary of Education Arne Duncan alerting him that the state has misused stimulus funds. For years, she said, the state has denied students in neglected schools the chance for a proper education, and no time should be lost in repairing that failure, especially since the federal stimulus package provides the state with money to fund education.

"I think Albany sadly has some of the wrong priorities," said Palast.

Health Care

The federal stimulus package also provides funds for Medicaid, the health program for low-income people. Earlier this month, however, Paterson announced that he is using some of that money to avoid enacting some of the unpopular nuisance taxes he had proposed last fall.

The budget leaves hospitals burdened with $306 million of the cuts, nursing homes facing $225 million and home care funds down by $68 million. The budget does go ahead with a plan to reform Medicaid reimbursement to hospitals.

Healthcare advocates have vehemently insisted that Paterson's plan to reduce Medicaid reimbursement for hospital while increasing payments for primary care will harm hospitals in New York City's struggling neighborhoods. They say that Paterson's plan would place a particular burden on hospitals that serve the underprivileged. Apparently legislators listened as they provided relief for hospitals with the highest percentages of Medicaid patients.

Despite that, the changes will severely damage hospitals that don't serve the highest thresholds of Medicaid patients, but still serve a large Medicaid community, according to William Van Slyke of the Healthcare Association of New York. Van Slyke said hospitals have yet to deal with the financial turmoil caused by last year's budget cuts. Some, he said, have been forced to make layoffs while others close. As a result, he said, New Yorkers are already seeing a slowdown in care and longer waits for appointments for standard procedures.

At the same time, Van Slyke says the budget takes away money that teaching hospitals use to fund graduate student training programs. He said that will mean hospitals will either be understaffed or forced to pay more doctors. That, he said, could actually increase costs since physicians command higher salaries than doctors in training. In addition, taking away funding for teaching hospitals will compound a physician shortage that already exists in many areas around the state, according to Van Slyke.

The budget also includes a gross receipts tax on hospitals that Van Slyke says will cost New York hospitals around $64 million.

"People are going to start wondering about these reforms when their standard of service goes down and hospitals start to close," said Van Slyke.

The Environment

A number of the features of the budget pleased environmental advocates, including a measure to place a 5-cent deposit on bottled water.

Environmentalists also were pleased to discover that the budget restores $45 million in cuts Paterson had proposed to make to the Environmental Protection Fund. Funding for that is now $222 million -- $17 million more than proposed in Paterson's budget. And instead of funding it with unclaimed bottle deposits as Paterson had proposed, the budget sustains the real estate transfer tax as the EPF's main funding source.

A number of New York City projects have relied on the fund for support including the Brooklyn Waterfront Greenway, Hudson River Park and the Harlem River Greenway.

Sharing the Pork

As for the $170 million worth of member items in the budget, Democratic senators have said privately that the money will help make up for the years that Republicans "starved" Democratic districts. One member pointed to his allocations to food pantries and homeless shelters in his district as something he felt good about. He noted that other leaders should have shown a little more tact in their choice of items, citing the $10,000 earmark one member requested for a Little League. Organizations all over the five boroughs -- tennis clubs, music organizations, afterschool programs and schools -- earned earmark attention from lawmakers.

One of the other notorious features of this year's budget -- the absolute secrecy of the negotiation process -- also is attributed to Silver. The speaker ensured the budget process took place exclusively behind closed doors and without public input. He even did away with the conference committees that were required by the 2007 budget reform act he himself once trumpeted as representing major progress.

Schneiderman said he is not at all proud of the process. "It would have been better to have more transparency, but we are trying to dig ourselves out of a hole we didn't dig," he said. When asked if he thought it was necessary to sacrifice transparency to secure drug law reform and the income tax increase, he shook his head vehemently, saying "One does not excuse the other."

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