With less than a month to go before the April 1 start of New York State’s 2022 fiscal year, Governor Cuomo has been politically wounded by the allegations of bullying and sexual harassment now being investigated by the attorney general’s office. Nonetheless, when it comes to shaping and steering the next budget to final adoption by the Legislature, the embattled governor is still behind the wheel.

In his original budget bills and his “30-day” budget amendments—issued Feb. 18, a week before the Lindsey Boylan sexual harassment accusations surfaced—Cuomo sought to consolidate his leverage over how the state spends any additional money generated by tax hikes or a forthcoming infusion of federal aid. While this was consistent with Cuomo’s notoriously controlling nature, it also was in keeping with the institutional interests of his office. All New York governors, regardless of political agenda or party affiliation, have an incentive to prevent lawmakers from spending or taxing the state into a deep (or deeper) hole.

UPDATE, March 4: On closer inspection, the online record of legislative filings indicates that the governor’s Aid to Localities appropriation bill has not been amended to reflect changes posted on the Division of the Budget (DOB) website. Apparently, Cuomo’s 30-day amendments to the Aid to Localities bill were submitted to the Legislature after midnight on Feb. 18, which marked the end of the 30-day period in which the executive can make binding changes to his budget bills, and thus the Senate and Assembly have not amended the bill. The State Operations and Capital Projects appropriation bills on file with the Legislature have been amended to reflective governor’s changes, however.

The most significant of the governor’s Aid to Localities amendments was a $3 billion “COVID-19 Extraordinary Relief Fund” appropriation (see page 12 of the amendments here) that represented Cuomo’s attempt to segregate and control the spending of any money raised by tax increases. The appropriation would not necessarily have bound the Legislature to begin with, as explained below, but the failure to file it on time is an embarrassing end to the governor’s gambit.

The budget-making challenge is particularly tricky this year. In the wake of the severe and unprecedented pandemic recession, after months of crying poverty, Cuomo has amassed (without admitting it) a short-term surplus, which could get much bigger depending on how much aid flows from Washington in a forthcoming stimulus bill. But the state also faces a yawning long-term structural gap, which was exacerbated by the joint Cuomo-legislative failure to begin adjusting spending when they first had a chance, a year ago.

Where the governor’s power begins—and ends

The governor’s political and personal credibility matters a lot, obviously, but regardless of his popularity in the Legislature, his leverage in budget talks ultimately is grounded in Article VII of the state Constitution (as further explained in my May 2019 primer, Unbalanced by Design: New York’s Strong Executive Budget System).

Key points to remember as the process unfolds:

• Budget bills are a unique category of legislation, shaped entirely by the governor and introduced automatically without legislative sponsorship. Two types of legislation submitted by the governor comprise the budget: appropriation bills which authorize spending, and non-appropriation bills including any statutory changes needed to implement the budget, such as tax increases. Cuomo introduced those bills on January 19, and as provided in the Constitution, met the 30-day deadline for submitting bill amendments on Feb. 18.
• The Legislature cannot alter the language of the governor’s original or amended appropriation bills in any way, shape or form. It can, however, add spending in the form of a separate line-item for any purpose.
• Any line-item additions require the governor’s approval to become law. If the governor vetoes them, a two-thirds majority in both houses is necessary to override him. Appropriation bills otherwise become law when passed, without requiring the governor’s signature.
• The Legislature also effectively has its own (seldom if ever used) veto, in the form of its power to unilaterally “strike out or reduce [line] items” of proposed spending in an Executive Budget appropriation bill before the bill is passed. The governor has no recourse if one of his proposed appropriations is reduced or eliminated before passage by the Legislature.
• Lawmakers can reject, rewrite or otherwise change the governor’s non-appropriation budget bills, also known as “Article VII bills” or “language bills.” Unlike appropriations bills, these statutory proposals require the governor’s signature to become law, and can be blocked by a gubernatorial veto subject to legislative override.

Executive budgeting powers in New York State have been further clarified though a series of legal disputes over the past 92 years, culminating in the Silver v. Pataki and Pataki v. Assembly cases decided by the Court of Appeals in 2004.

Key FY 2022 variables

Tax policy looms as the most contentious area of budget talks between Cuomo and legislative leaders.

Senate Majority Leader Andrea Stewart-Cousins began the budget cycle by signaling her willingness to hike taxes, and Assembly Speaker Carl Heastie included additional “millionaire tax” rate hikes in his one-house budget resolutions for several years before 2020. Small but growing numbers of backbench Democrats in both houses—pressured by left-wing cadres threatening incumbents with primary challenges—have endorsed elements of the radical “Invest in Our New York” agenda, which seeks to raise taxes on “millionaires and billionaires” by an astounding $50 billion (equivalent to a 50 percent increase in the state operating funds budget).

Since taking office as governor a decade ago, Cuomo has been on both sides of the tax issue. After pledging not to extend a temporary three-year millionaire tax hike first enacted under Governor David Paterson in 2009, Cuomo reversed course and pushed through a slightly reduced version of the tax with bipartisan support in December 2011. Since then, he’s supported a series of extensions of the still-temporary tax, most recently through 2024.

Until this year, however, Cuomo had resisted calls for even higher top bracket rates, especially in light of the 2017 federal tax law’s curtailment of state and local tax (SALT) deductions, which was tantamount to sharp additional increases in New York’s effective marginal rate on high earners. As he put it in February 2019: “Tax the rich, tax the rich, tax the rich. We did that. God forbid the rich should leave.”

By the end of last year, the governor had again shifted his position, saying some sort of tax hike would be necessary in light of pandemic-related revenue losses. His FY 2022 Executive Budget Revenue Bill (Part A) would add a 0.5 percentage point surcharge to the existing 8.82 percent rate on incomes above $5 million, rising in stages to a full 2 percentage points on incomes above $100 million. This would take the highest rate up to 10.82 percent, or a combined 14.7 percent in New York City, with the surcharges set to expire after three years. Apparently aiming to soften the blow, Cuomo’s proposal also includes a novel provision offering to refund the entire temporary increase to filers who prepay the amount in 2021.

Cuomo estimated his tax hike would generate $1.5 billion in 2022, and a total of $4.5 billion through FY 2024. Since then, however, the revenue picture has continued to improve. Cuomo’s 30-day financial plan update increased his income tax receipts projection by $1.6 billion a year—more than his proposed income tax increase would raise. This week, his budget director and legislative fiscal staffs agreed to a consensus forecast raising their revenue projection through next year by another $2.45 billion. Yet the governor has not withdrawn support for a tax increase—which, having put it on the budget table in the first place, he can’t take back even if he wants to.

Cuomo’s new budget hooks

Signaling the governor’s understandable concern (or perhaps outright anxiety) that the Legislature will seek to raise taxes even higher, his 30-day amendments included two clauses clumsily linked to each other:

• A new Finance Law provision, Part UU of the amended Public Protection and Government bill, would establish the “COVID-19 extraordinary relief fund” to absorb any money raised by new taxes passed this year. Money in the fund would be doled out in the form of loans and grants to school districts, local governments, for-profit and nonprofit agencies “to support necessary and urgent expenses” related to the pandemic, subject to plans approved by the governor’s budget director.
• A related appropriation of up to $3 billion from the Covid-19 extraordinary relief fund was added to the Aid to Localities appropriation bill—the wording of which, the Legislature can’t change. The language includes the stipulation that the money will be available only if the Legislature separately enacts Part UU, or a law “identical” to Part UU.

Language conditioning some appropriation to passage of a separate non-appropriation bill language is a familiar Cuomo budget amendment gambit, something he’s floated in previous budget proposals dating back to 2015-16. However, he has never insisted on such a provision in final budget deals. If he did, the Legislature could challenge it in court with a strong argument that the governor had pushed beyond the executive budget power clarified by Silver v. Pataki.

Even assuming Cuomo’s language-linkage was credible, it’s not clear that it would really tie lawmakers’ hands.

Say, for example, the Senate and Assembly agree to increase taxes by $4 billion (an absolutely dreadful idea, to be sure).  In that case, they could simply (a) erase Part UU from the final version of Public Protection and Government bill, (b) ignore Cuomo’s Local Assistance bill appropriation to the non-existent COVID-19 extraordinary relief fund, and (c) go ahead and distribute $4 billion in the form of line-item additions to their favorite state programs, starting with school aid. These spending additions would be subject to the governor’s veto—but then again, so would the tax increase feeding the fund, bypassing the governor’s control by another route.

The governor could still use his veto to block a straightforward tax hike and the spending increases linked to it. Legislative leaders would then have to decided whether to attempt an override. Democrats now hold a supermajority of 43 Senate seats—which means they would fall short of a two-thirds majority if just two members defect on an attempted override. Before the current controversy over his treatment of Assemblyman Ron Kim and allegedly crude encounters with two staffers and a third woman at a wedding reception, Cuomo presumably could have persuaded a few suburban lawmakers to oppose a tax hike, even if Stewart-Cousins (whose own district includes affluent Westchester suburbs) supported it. There are still plenty of solid substantive reasons for the suburban Democrats, in particular, to resist the hard-left agenda, but encouragement (and political rewards) from Cuomo presumably will no longer be foremost among them.

The Biden stimulus question mark

Cuomo’s added budget control lever has to do with the biggest known unknown of this year’s budget cycle: the precise amount of aid that will flow to the state under the $1.9 billion coronavirus relief bill heading to congressional passage—and President Biden’s desk—sometime before the end of March.

The governor has framed his financial plan around the “worst-case scenario” assumption that the feds will send the state unrestricted aid of $6 billion, which he counts in the financial plan as two equal chunks of $3 billion over the next two years. He also loudly continues to insist that he is entitled to nothing less than $15 billion—a figure he sometimes described as the state’s budget deficit, although nothing in his own numbers supports this.

The $1.9 trillion stimulus bill passed last weekend by the House of Representatives includes $350 billion in state and local aid that would hand New York’s state treasury $12.7 billion with no strings attached, plus nearly $10 billion targeted to elementary and secondary schools across the state.  But as noted here yesterday, U.S. Senate Democrats are likely to reduce or recategorize the state and local aid in the bill before they pass it.

Wherever the figure ends up, Cuomo’s budget would provide the necessary appropriation to spend the unrestricted federal aid only in the exceedingly unlikely event that the total reaches $15 billion.  Here is the relevant provision, as found nearly at the end (page 851) of the voluminous Aid to Localities appropriation bill (underline added):

The $9 billion appropriation figure apparently is meant to represent the difference between $15 billion and the $6 billion Cuomo assumes the state will receive (that $6 billion is apparently covered by a bigger, generic federal appropriation elsewhere in the budget).

And that underlined passage is the governor’s hook. Cuomo’s unchangeable appropriation language clearly implies that even if the state receives, say, $14.9 billion, the Legislature will have no legal authority to spend at least $8.9 billion of it. But this obviously is not Cuomo’s real intention; rather, the unusual provision was designed as a placeholder, to ensure that the governor maintains the upper hand on determining how additional federal aid will be spent. The language also prescribes that a “portion” of unrestricted aid will be spent on aid to localities, school districts, public authorities and nonprofits, followed by a “schedule” breaking down $5.3 billion in outlays—the biggest chunk of which, $3.2 billion, would flow to school districts, which are already the main beneficiaries of $5 billion in aid the state received under a COVID-19 relief bill passed by Congress in its December lame-duck session.

Up next

Under the normal New York budget process schedule (which was suspended last year), the two legislative majorities will pass their one-house budget resolutions—essentially their tax and spending wish lists—next week. That will mark the beginning of actual negotiations between the legislative leaders (giving directions from the back seat) and Cuomo (still driving—for now, at least).