Flush With Cash, Faced With Covid: Albany Ponders Budget Choices
In Albany today, it's (with a nod to Charles Dickens) the best of times and the worst of times.
For reasons having to do with both the Federal Covid-19 aid approved last spring and prosperous times for high-income taxpayers throughout 2021, State leaders are – for the first time in modern memory – not confronting any short- or long-term budget gaps.
At the same time, job dislocations in the state are worse than at any time since the Great Depression. Absent aggressive remediating policies – which are not now on the agenda – they’re likely to linger for years to come.
Squaring these widely disparate realities will set the budget adoption tone in Albany, a process that began yesterday with Governor Kathy Hochul's release of her proposed $216 billion spending plan for State Fiscal Year 2023, beginning April 1st.
It’s a budget proposal that’s historic for at least four reasons:
Tax revenue growth has been such that the financial plan shows balanced budgets for the next five years;
Building on plans she first outlined last November, the governor uses a big chunk of extra State revenue for future budgets, increasing “principal reserves” to over $19 billion, equal to 15 percent of State operating expenses for Fiscal Year 2025;
She is unceremoniously jettisoning her predecessor’s decade-long austerity budgeting that had starved human services, higher education, and funding for local governments, including for critical purposes such as public health preparedness; and
For the first time in living memory, she also sets aside $2 billion in her budget proposal for the State Legislature to decide how to allocate.
The big driver on the receipts side of the ledger: Taxes generated by the state’s lopsided economy.
During the pandemic, New York has experienced robust corporate profits, soaring salaries and stock market-driven capital gains for the well-off that have swollen personal income tax collections that account for over two-thirds of State tax revenue.
As a result, total tax collections for the current fiscal year are 11 percent higher than anticipated last April. For the first nine months of the current FY 2022, tax collections were 25 percent higher than in pre-pandemic FY 2020. And tax revenues are continuing to roll in over the more recent projections made in November, to the tune of a further $4.6 billion for this fiscal year and $19 billion over four years.
Those extra dollars permit Hochul to lay out an ambitious agenda combining several spending initiatives, tax cuts, and pay-as-you-go capital spending.
For example, while details are still sketchy, the FY 2023 Executive Budget includes $1.2 billion for bonuses for frontline health care workers earning less than $100,000, intended to aid staff retention and recruitment. It also proposes $500 million to fund a 5.4 percent cost-of-living increase for contract workers in human services and mental hygiene agencies. (By way of contrast: For most of his 10 years in office, her predecessor, Andrew Cuomo, denied any pay increases for such nonprofit workers.)
As a down-payment on her pledge to transform SUNY into the “top statewide system of public higher education in the country,” the governor’s budget also increases higher education funding by 9.2 percent in the coming year. This includes fully funding tuition credits provided to Tuition Assistance Program (TAP) recipients, expanding TAP for part-time students enrolled in degree programs, and funding additional full-time faculty at CUNY and SUNY schools.
The Executive Budget also includes tax cuts worth $2.5 billion in FY 2023, $1 billion in FY 2024, and lesser amounts in subsequent years. The main item is $2.2 billion for a one-time homeowner tax rebate credit geared to low- and middle-income and senior homeowners. A one-time refundable Small Business Tax Relief Credit for Covid-19 expenses (capped at $250 million) is proposed for FY 2024. The budget would extend to June 30, 2023 the NYC Musical and Theatrical Tax Credit intended to aid eligible productions and boost tourism recovery New York City, and double the tax credit to $200 million. There would also be recurring Small Business Tax Relief of $100 million annually by raising the income exclusion from five to 15 percent of net business income.
Now: Do these initiatives do enough to heal our Covid-ravaged state? In a word: No.
Here’s the reality. Today, roughly a million households across the state have lost work and paychecks, and have run out of Federal help. Many now worry about paying the rent and possible eviction, while coping with Covid’s health impact or the mental anguish of trying to juggle work and family responsibilities with what passes for a safety net in this society. And while the State has received $18.5 billion in Federal pandemic assistance this fiscal year, $14 billion of that is in the form of programmatic assistance meant to address pandemic-related expenditures and needs, such as for emergency rental assistance or helping schools re-open. Direct Federal income assistance to families has now dried up.
In her State of the State address earlier this month, Hochul spoke of “overhauling” workforce development. This would involve creating an office of Workforce and Economic Development within the Empire State Development Corporation that would work with regional Economic Development Councils, the Department of Labor, and CUNY and SUNY. Without any details, the budget includes $350 million for this purpose.
Unfortunately, however, State budget documents don’t suggest any urgency in using such resources to respond to a sky-high unemployment crisis. State forecasters now think New York won’t reach pre-pandemic employment levels until 2024. (To address this crisis, our recent state policy brief proposed an immediate active labor market program of job retraining and employment assistance.)
And although the budget finally starts to nudge upward wages for many low-paid State-funded childcare and home health care workers, it falls far short of what’s needed. There’s a steadily worsening shortage of workers providing in-home care for the elderly, the disabled, and others who can’t care for themselves. At a time when many private sector employers are responding to their own difficulties in retaining and recruiting low-paid workers by raising pay, the proposed budget doesn’t do nearly enough to match such efforts.
The proposed bonus for frontline health care workers also limits eligibility to those logging in at least 40 hours a week. That’s more than most home care providers work; estimates are that only about one in 10 will qualify for a bonus.
Recognizing the significant budget savings that result from keeping clients out of high-cost residential care facilities, advocates have been pressing for a long-overdue pay adjustment to at least 150 percent of the minimum wage. And while the budget also proposes $75 million to increase pay for child care workers (and also increases child care subsidies for low-income families), given the implosion of the child care workforce and drag on the economy that lack of child care represents, there is certain to be pressure to do more in this realm, too.
Anticipating that the Legislature will have their own extensive set of budget priorities, Governor Hochul includes in her revised FY 2022 budget, a $2 billion “reserve for pandemic assistance” that will be jointly negotiated. In addition to a proposal for universal child care, higher home care worker pay, and other needs, there is support among many legislators to establish a permanent Excluded Workers Fund to provide access to unemployment insurance for workers normally excluded. There will also be pressure to provide $50 million to fund implementation of the NY HERO (Health and Essential Rights) Act enacted last year that standardizes workplace protections against airborne illnesses like Covid-19.
The stage is now set for intensive budget debate and negotiation in Albany on this historic budget proposal under these unprecedented circumstances as New York struggles to emerge from a two-year period of the Covid health crisis and economic disruption.