Budget Time

Good morning from Albany, New York. 

Last Tuesday, Governor Kathy Hochul unveiled her Executive Budget proposal for the upcoming state fiscal year, focusing her message on affordability and “putting money back into New Yorkers’ pockets.” The budget tops out at $252 billion! That is up again from last year’s $239 billion enacted budget. State Budget Director Blake Washington said the increase is “largely based on current spending for Medicaid and school aid. These commitments comprise probably 60% of the increase alone.” Hochul pointed to better-than-expected state tax receipts, resulting in a roughly $5.3 billion current-year surplus, as the offset for her affordability proposals. Nonetheless, Washington conceded a $6.5 billion gap in the next fiscal year and an $11 billion budget gap by 2029. The State’s “rainy day” fund has surpassed $21 billion, though Hochul and leadership in the Legislature have been hesitant to use that money to fill annual budget gaps. 

Hochul’s budget contains no new taxes. However, it does include an extension of the current tax rates for earners making over $1.1 million a year, taxes that were set to expire in 2027. That said, Hochul elected not to extend the increased tax rate on corporations making more than $5 million a year in profit. Also included in Hochul’s tax plan is a proposed cut across five of nine tax brackets (joint filers making up to $323,200 per year), an increase in the child tax credit (up from the current $330 ceiling to $1,000 per child under age four), and one-time $300 “inflation rebate” checks to New Yorkers making less than $150,000 annually. Hochul reiterated that the goal of this budget is to make life more affordable for New Yorkers, offering, “When you add all this up—the child tax credit for your little ones—your family’s inflation refund, school breakfast and lunch, plus the middle-class tax cut, that puts nearly $5,000 back in the pockets of many New York families. That's how you make a difference.” 

To address public safety, Hochul’s plan includes an expansion of New York’s involuntary commitment laws, permitting authorities to intervene earlier if individuals cannot meet their basic needs, even if those individuals are not considered dangerous. Hochul said, “This is about having the humanity and the compassion to help people incapable of helping themselves, fellow human beings who are suffering from mental illness that is literally putting their lives and the lives of others in danger.” Many advocates reject this approach, certain Hochul’s plan does not address the underlying issues of mental health. Harvey Rosenthal, CEO of the Alliance for Rights and Recovery, said, “This has often been the knee-jerk reaction that groups have when there are times of crisis or tragedy, and it's a false solution. It hasn't been proven. It doesn't really get the job done. It doesn't answer why we have people on the street. We shall see whether the legislature backs this proposal in their one-house budgets.” That said, others, especially those concerned about crime, will embrace the proposal. A lot more to come on this issue.

In addition to the universal free school lunch proposal, Hochul’s education agenda includes a phone-free schools initiative requiring schools to submit a plan for implementing a cell phone ban and provides $13.5 million to support implementation. According to Hochul, “Schools will have flexibility in how they implement this. Districts will decide how they want to store devices and how they will ensure compliance. Of course there will be exceptions for students who need their devices for medical reasons, to assist non-English language speakers, and students with learning disabilities.” Despite some tweaks to the State’s Foundation Aid Formula, overall school aid will increase by 4.7%, and Washington offered, “the vast majority of schools will receive more money than they would have without these slight adjustments to the formula.”  

New York State expects its share of Medicaid spending—a program covering 1 in 3 New Yorkers—to increase by $4.3 billion, up to a total of $35.4 billion. To offset some of those costs, Hochul’s budget calls for the continued implementation of a fee on managed care organizations to the tune of $1.4 billion a year. The budget also anticipates $500 million in savings from last year’s controversial decision to select a single fiscal intermediary to administer the Consumer Directed Personal Care Assistance program.

Hochul also noted that there is a real element of risk for Medicaid—as well as many other programs—that rely on federal government funding given the new administration in Washington, saying in her presentation, “Changes at the federal level WILL create new challenges for the State and for programs New Yorkers care about. It’s already started. And if the Republicans in power cut critical federal funding streams for Medicaid, education, child care, utility assistance—the list goes on… So, I am looking to our Congressional delegation, particularly Republicans, to prevent cuts that will harm New Yorkers. And if they fail, they must be held accountable.”

One area where Hochul and the Republican New York Congressional delegation are in agreement is the need to lift the state and local tax (SALT) cap, a federal tax deduction that disproportionately affects states with higher tax rates. A group of GOP House members from New York and New Jersey made a pilgrimage to Mar-a-Lago earlier this month to get Trump on board with lifting the cap, and Hochul has called on them to reject any tax deal that does not address SALT. In a statement, Hochul said, “I will always fight for New York families, and the SALT cap is hitting middle-class New Yorkers where it hurts the most—their wallets. It's unfair, it's unsustainable, and the solution is simple: no repeal, no deal.”

Rep. Mike Lawler (R-NY) has vowed to vote against any tax bill that does not include a SALT increase, risking a showdown with his fellow Republicans and Trump if he cannot get them on board. Lawler and other moderate Republicans met with Trump again on Wednesday, with Lawler offering, “He is in full agreement with us, which is extremely helpful, obviously, when dealing with some of my colleagues who are reflexively opposed because they think they are subsidizing bad blue-state policies.” While Trump may be in agreement (for now), the SALT cap was a partial offset for the 2017 tax cuts, which would have to be replaced in a 2025 tax bill.

Even with the 200+ proposals unveiled last week, two of the state’s largest areas of fiscal concern—funding the Metropolitan Transportation Authority (MTA) and the costs associated with implementing the State’s Climate Action Plan—remain unaddressed. The MTA is facing a $33 billion hole in their 2025-2029 capital plan, which ultimately led to leadership in the legislature formally rejecting the plan in late December. Now, Hochul has said it is up to the Legislature to come up with a fix, a message Director Washington reiterated on Tuesday, saying, “The governor, the MTA, and the legislature will have to figure out the size of the plan. Once we know exactly what we are gaming for, [Hochul and the legislature will discuss] fees and taxes because it’s to support the lifeblood of the city's economy.” Washington also said some form of new tax will have to be on the table after the legislature rejected a plan last year to implement a payroll mobility tax to fill a gap in the MTA’s current capital plan.

The budget, as Hochul’s State of the State proposal before it, was devoid of any details on the implementation of a cap-and-invest program, a hallmark of the State’s ambitious climate plan. Under the cap-and-invest system, companies would be required to buy credits from the state to offset greenhouse gas emissions, with the revenue being used to fund green energy projects and provide utility rebates for taxpayers. Advocates and lawmakers had expected the Executive Chamber to release program guidelines in the budget proposal in order to begin generating revenue for new climate projects, which will now not happen until 2027 at the earliest. Senator Kevin Parker, Chair of the Senate Energy Committee, is frustrated with the lack of progress and communication, saying, “They haven't talked to anybody. They haven't had hearings, they don't know what the community thinks, (and) they haven't talked to the Legislature with their ideas about it.” Hochul has said she remains committed to the program, but other lawmakers are not so sure. Senate Environmental Conservation Chair Pete Harckham offered, “What was disappointing was that there was no mention of climate change, the environment, or specifically cap and invest pertaining to climate change. Let's hope the approach to climate policy is not changing. It’s greatly disappointing, but more importantly, it's a missed opportunity to address climate change and a missed opportunity to address affordability in utility rates.” 

Speaking of pardons, New York City Mayor Eric Adams met with Trump just days ahead of his inauguration. Adams denied discussing a pardon for his looming federal indictment, saying in a statement, “To be clear, we did not discuss my legal case, and those who suggest the mayor of the largest city in the nation shouldn't meet with the incoming president to discuss our city's priorities because of inaccurate speculation or because we're from different parties clearly care more about politics than people.” Adams also made a last-minute change to his schedule to accept a late invite to the Trump inauguration, canceling several MLK Day events in NYC to speed out of NYC at 3 a.m.

While in town for the Trump meeting, Adams kept the bipartisan mood rolling, dining at Joe’s Seafood, Prime Steak & Stone Crab with Republican Reps. Marc Molinaro and Anthony D’Esposito, state Senate Minority Leader Robert Ortt, state Assembly Minority Leader William Barclay, NYPD Chief of Department John Chell, and NYPD Deputy Commissioner Kaz Daughtry.

In response to the blowback for the MLK cancellations, Adams insisted Dr. King would have wanted him there, saying, “My life is the life that Dr. King talked about when he said he had a dream. I’m living that dream.”

-Jack O’Donnell

Client News

To help bring this center to life, the YMCA is working with a multitude of leaders and agencies in the state who believe as passionately as the ‘Y’ does in its mission to serve, including Assemblymember Jen Lunsford, who secured $400,000 in funding, and Empire State Development, which is providing a $1.5 million grant to support this project. Read more.

Fika Midwifery Commissions Artwork by Julia Bottoms to Exhibit in The Coit House Birth Center

OD&A client, The Coit House proudly unveiled its commissioned artwork on Friday, highlighting the positive effects of later-stage breastfeeding on the health of women and children. Read more in Buffalo Rising, WKBW-TV and WIVB-TV.

New to the NYS Legislature

Which issue highlighted in Governor Hochul's State of the State address is most important to you?

This Day in History

January 27, 1973: The Paris accord ending the Vietnam War, America's longest war to that time, was signed, providing for an exchange of prisoners and for the unilateral withdrawal of U.S. forces from South Vietnam.

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