The devil is in the details and, so far, the details are few and far between in the late-again New York State budget state lawmakers approved over the weekend.
Gov. Kathy Hochul last week announced a
"Based on a preliminary assessment of the negotiated changes to the executive proposal, the total budget for fiscal 2025 is currently estimated at $237 billion," Hochul said at a press conference in Albany. "The fiscal 2025 budget does not raise income or statewide business taxes and maintains state reserves at the gold standard of 15% for a 'rainy day.'"
The state's fiscal year begins April 1. This is the second year in a row that New York has missed that deadline.
"Numbers are hard to come by in a comprehensive way, but we do learn that the state's budget is targeted at $237 billion," said John Hallacy, founder of John Hallacy Consulting LLC.
"We are also informed that a 15% reserve will be part of the plan. At this point, it is hard to say what the out-year gaps may look like," he said.
The agreement includes some of the governor's initiatives on housing and health and transportation and infrastructure.
"We're delivering on a common-sense agenda: fighting crime, fixing our mental health system, and building more housing so people can finally afford to live in New York," she said.
Some of the highlights of the budget include:
- Creating a tax incentive for affordable housing; extending the incentive for projects already in the pipeline;
- Making it easier to convert unused office space into affordable housing;
- Eliminating density caps in New York City;
- Unlocking the potential of units that have been vacant since 2019 and establishing a law to protect tenants from price gouging;
- Creating a statewide tax incentive for multi-family housing;
- Making $650 million in discretionary funds available to pro-housing communities;
- Providing incentives for communities that want more accessory dwelling units;
- Investing $500 million to develop up to 15,000 housing units on state-owned sites;
- Protecting homeowners from deed theft;
- Investing in mental health by including $19 million for mental health services for school-aged children, $55 million to establish 200 inpatient psychiatric beds at state-run facilities and mandating better mental health care at hospitals;
- Maintaining $3.9 billion to support distressed hospitals and a $20 billion multi-year investment to build healthcare infrastructure, expand Medicare coverage for seniors and pregnant women and increase the home care worker minimum wage;
- Becoming the first state to offer paid leave to expecting mothers, addressing the proliferation of surgical procedures in situations where they're not necessary and increasing access to care for post-partum depression;
- Securing $200 million in Medicaid savings through fiscal intermediaries and by cracking down on fraud;
- Investing $7.5 billion in the health care system over the next three years through an amendment to New York's Medicaid Section 1115 Demonstration program;
- Authorizing the state to pursue federal approval for a managed care organization tax, which could generate significant revenue for the state to provide a multi-year investment in New York's health care system;
- Providing 5.4% more funding support to mass transit systems statewide, including $7.9 billion in operating aid for the MTA, $333 million for upstate transit systems and $551 million for non-MTA downstate systems;
- Advancing infrastructure programs by contributing $2.6 billion to a third year of a record $32.9 billion five-year DOT capital plan and $100 million for local programs through the CHIPS program;
- Making environmental investments of $500 million for clean water, $400 million for the Environmental Protection Fund and $47 million to support the governor's goal to plant 25 million trees by 2033; and
- Providing funding for P-12 schools by investing $35.9 billion in total school aid, including $24.9 billion in Foundation Aid.
State lawmakers
"The two-week late 'conceptual' budget agreement leaves New York State with a significant future structural budget gap likely exceeding $16 billion," said Andrew Rein, president of the Citizens Budget Commission.
"From the reported details, instead of using strong receipt growth to stabilize New York's fiscal foundation, the budget adds unaffordable spending that increases future gaps," he said. "Fiscally, it simply takes the state further in the wrong direction."
He too noted the lack of details offered. "Two weeks and five extenders past the budget deadline, the governor has announced 'the parameters of a conceptual agreement' without the fiscal details on the plans to spend reportedly $237 billion of the public's money," he said.
Hallacy noted the substantial new spending.
"This budget is clearly not a 'caretaker' budget but adds significant spending. The question is how that spending will affect the out-years?" he told The Bond Buyer.
While the good news is there will be no general tax increase, Hallacy said, "there is a mention that the top rate on the Payroll Mobility Tax will be raised. Other revenue possibilities would come from three downstate casinos. We have been hearing about plans for casinos for years without much to show."
Rein agreed.
"Following the governor's leadership, it's good news that the budget apparently rejects tax increases on New Yorkers that would hurt the state's competitiveness," he said.
Hallacy said "solid increases are included in some $7.9 billion to the New York Metropolitan Transportation Authority and for 421a housing programs. Foundation Aid for Schools will be raised by $2.6 billion to $24 billion and is touted as the first time the commitment is being fully funded."
Medicaid reimbursements will increase by 7.5% to assist institutions that have financial pressures, he noted.
Rein said it was "unfortunate that the Legislature rejected most of the governor's proposals to restrain Medicaid spending and rejected the common-sense removal of the hold harmless on education aid this year."
"Furthermore, the Tier 6 retirement-plan enhancement that reportedly is part of the budget is unnecessary, unpaid for in the long run, and an unfunded mandate on localities," he said.
"Savings are worth just a mention, with some $400 million of operating efficiencies at the MTA," Hallacy said.
"One more noteworthy development is that the minimum wage is being raised to $16 in New York City and to $15 in the suburbs with other phase-in provisions elsewhere. This change should not alter hiring significantly," Hallacy said.
New York City Mayor Eric Adams was happy with the budget agreement.
"This budget will be a win for New Yorkers," he said.
"We are thrilled that there has been agreement on most of our core priorities, including the major package of legislation to grow our affordable housing supply and protect tenants ... and $2.4 billion for migrant support," Adams said.
State tax collections for fiscal 2023-24 totaled $106.4 billion, over $2 billion more than forecast by the Division of the Budget in the most recent financial plan, according to the
Tax receipts also exceeded the projection in the Consensus Economic and Revenue Forecast Report, which estimated $1.35 billion in additional receipts above DOB estimates through the end of state FY 2024-25.
However, actual tax collections for fiscal 2023-24 were $5.2 billion lower than the previous year, due, in part, to a decline in personal income tax receipts resulting from lower middle-class tax rates and lower payments related to tax year 2022 annual returns, according to the report.
"With an economy that performed better than expected, the state's tax collections outpaced forecasts," DiNapoli said. "The pace of inflation and Federal Reserve Board interest rate decisions will continue to impact economic growth in the coming fiscal year. State policy makers should ensure that the enacted budget for fiscal 2025 accounts for such risk."
The CBC released a report last week showing New York State and its localities spent 50% more per capita than the national average. The state ranked second, above all states except Alaska, and was 7% higher than California, 55% higher than New Jersey, 77% higher than Connecticut, 24% higher than Massachusetts and 71% higher than Texas and 101% higher than Florida.
The report also noted the state and its localities led in
"These 2021 data are the most recent available, before New York increased tax rates and grew spending," the report said. "New York State and New York City have both substantially increased spending since state and city fiscal 2021, likely maintaining New York's chart-topping status."
The CBC warned New York is at a precarious time, with hybrid work, pandemic-accelerated outmigration, affordability challenges and high taxes all posing threats to its future.
"Neighboring and competitor states are able to tax and spend less. Given the need to compete, increasing taxes in New York would risk the state's economic wellbeing," the CBC said. "New York should focus on identifying which services and policies are most critical for New Yorkers and New York's future, run them well, and align spending with affordable, recurring revenues."
Last year, issuers across New York State ranked third in the nation for municipal bond sales, falling from the number one position in 2022. Issuers sold $42.26 billion of debt in 2023, down from $49.9 billion in the prior year, according to LSEG.
The state's general obligation bonds are rated Aa1 by Moody's Ratings and AA-plus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.
Transparency and clarity are key, Rein said.
"We urge the state to publish basic financial plans as the Legislature votes on the bills," Rein said. "New Yorkers deserve a clear view of the full budget picture and what it means for the future. At their heart, budgets are tables of numbers and not bullet points and narratives."
