Gov. Andrew Cuomo is expected to unveil on Tuesday his plan for filling the largest budget deficit he’s encountered during his time in office, with potential tax hikes and cuts in spending on the table if the state doesn’t get help from Congress.
The elephant in the room,according to budget analysts, will be what the state projects to receive in federal aid, and if the budget gap may narrow on its own in the coming months.
Cuomo’s said repeatedly in recent months that he’s banking on the incoming administration of President-elect Joe Biden to negotiate a new aid package with Congress that includes billions of dollars in aid for state governments, including New York.
And the chances of that happening were boosted earlier this month, when Democrats won control of the U.S. Senate. That’s upped New York’s chances of receiving federal aid, Cuomo said during his State of the State address last week.
“We expect basic fairness from Washington,” Cuomo said. “With our new President, new Senate and the House members, I believe they will do justice.”
Biden, for his part, said last week that he’s proposing a new aid package that would include a significant funding boost for state and local governments, but it’s unclear how much New York would receive in aid under the plan.
Cuomo has pegged the state’s current budget deficit at about $15 billion. That’s the result of lost tax revenue during the COVID-19 pandemic and the state’s direct cost of responding to the virus. Local governments are experiencing similar shortfalls.
Budget analysts have said the state’s financial outlook is more complicated, pinning the existing budget gap closer to about $10 billion.
State Comptroller Tom DiNapoli, in recent months, has reported better-than-expected tax revenue collected by the state and Congress has chipped in sporadically over the last year. That’s helped, but hasn’t come close to filling the budget gap.
Patrick Orecki, a senior research associate with the Citizens Budget Commission, a nonpartisan budget analysis group, said the big question about Cuomo’s budget plan will be how much the state expects to receive in federal aid.
“The state is relying on the federal government to help backfill some of the gaps that have opened up because of pandemic-related revenue losses,” Orecki said. “That's a big first thing that we'll be looking for — both any expectations or assumptions of future aid.”
That will likely exist in Cuomo’s budget plan as a projection — and that number will determine the rest of his financial strategy.
If Cuomo expects the federal government to fill the state’s budget gap in full, for example, that could eliminate, in the eyes of the administration, the need for spending cuts and revenue-raising measures, like new taxes.
But if Cuomo projects a more conservative aid package from Congress, the question will be how he plans to make up the rest of the gap.
Last year, the Cuomo administration withheld billions of dollars in state funding to help balance the state’s finances. Those reductions were labeled as temporary, at the time, with an expectation that the funding could be restored in the future.
Orecki said he’ll be watching to see if those withholdings evolve into permanent cuts, depending on how much federal aid the state plans to receive.
“We don't yet have any real detail on what was even withheld throughout the year,” Orecki said. “So we'll be looking for some detail too on what the state has done there.”
And then there’s the question of potential revenue raisers, or new ways the state can raise money without relying completely on help from the federal government.
Cuomo and a faction of Democrats in the state Legislature have been engaged in a months-long disagreement over potential tax hikes on the state’s richest residents. It’s an idea that’s been floated for years, but more so since the spring.
Democrats in the state Legislature have said they’re ready, and willing, to raise taxes on the wealthy, with an expectation that the revenue could help curb the budget gap, if not eliminate it completely. They have yet to seriously consider a proposal.
Senate Majority Leader Andrea Stewart-Cousins said last week that those conversations remain ongoing.
“We're more than willing to look at taxing millionaires and billionaires because again we need to rebuild our economy,” Stewart-Cousins said. “We can't just wait for Washington.”
But Cuomo has pushed back on the idea, saying it wouldn’t raise nearly enough money to fill the state’s budget gap. He’s projected that, if New York raised income taxes to match the current highest rates in the country, they would raise about $1.5 billion annually.
Others have pegged the number higher, saying a combination of proposals currently floated by Democrats in the Legislature would exceed the state’s budget gap and provide a consistent revenue stream for struggling programs, like education and infrastructure.
Cuomo has said that, even if New York receives aid from Washington, the state could end up raising taxes anyway. He hasn’t said what kind of taxes would be raised, but Democrats in the Legislature have only considered tax hikes on high-income earners.
Two other revenue raisers are also on the table, and have support from both Cuomo and the Legislature.
The legalization of both mobile sports betting and marijuana for adult use has the potential to raise hundreds of millions of dollars for the state — but not anytime soon. Orecki said marijuana legalization, for example, wouldn’t affect this year’s budget gap.
“What's important is that there is a long build up time,” Orecki said. “So, not only do you have to create a new legal market, that generally takes at least a year to build that out, regulate it, and get it up and running.”
Both Cuomo and several Democrats in the Legislature appear to support the legalization of both marijuana and mobile sports betting, but they remain divided on what either market would look like.
More details on Cuomo’s proposals are expected in his executive budget proposal, which will be released after his address on Tuesday. The state budget is due at the end of March.