New York has been trailing most states in the race to recover from the economically devastating coronavirus pandemic, recent employment data have shown. And later today, the federal government will release 2020 census data showing a further relative decline in New York’s population, leading to loss of up to two more congressional seats. (Update: the census numbers indicate New York will have to give up one seat in the next reapportionment.)
The right public policies would be lifting New York’s economy more quickly—but in crucial respects, Governor Cuomo and the Legislature have been moving in precisely the wrong direction.
One year ago this month, the Empire Center issued Empire Upward, a report outlining “seven essential steps for promoting the recovery and renewal of New York’s economy.” Unfortunately, measured against our recommendations, the state has not only failed to move upward—in several crucial respects, it went in the opposite direction and actually took steps downward.
The policy response does not bode well for the future. Unless New York reverses course, the state government’s renewed embrace of heavy-handed regulations, higher taxes and record-high spending will lead to continuing demographic and economic decline for the Empire State.
Here’s a review of each of those “seven essential steps” as we laid them out a year ago—and the subsequent policy upshots:
Step 1 — Repeal or reform laws and regulations that discourage hiring and investment in New York. Immediate targets include scheduled end-of-year increases in the minimum wage outside New York City and the expansion of public works “prevailing wage” requirements to government-subsidized private projects. The Public Service Commission should postpone utility rate surcharges linked to costly renewable energy projects, and the state should clear the way for expansion of natural gas pipelines it has been blocking. The nation’s highest workers’ compensation insurance costs must be lowered. Proposals that would force new employee benefits on businesses of any size should be rejected.
Upshot — Despite the crushing impact of pandemic restrictions on small businesses throughout New York, Cuomo’s Labor Department announced it would move forward with a big minimum wage increase that could have been postponed for another year. On Dec. 31, the hourly minimum rose $13 to $14 (an increase of 7.7 percent) on Long Island and in Westchester County, and from $11.80 to $12.50 (an increase of 5.9 percent) in the rest of the state. Only six states had higher statewide minimums than $11.80, and only two (California and Washington) exceed $13 statewide. All prevailing wage requirements remained in place, the PSC moved ahead with utility rate surcharges, natural gas pipeline expansions remained blocked, and workers’ compensation costs were not lowered. And to make it all worse, the Legislature has just passed the New York Health and Essential Rights Act, aka the HERO Act, permanently imposing costly COVID-19 workplace regulations on many employers.
Step 2 — Avoid tax increases. Every New York fiscal crisis over the last 45 years has resulted in tax hikes that ultimately were rolled back or allowed to expire—with the exception of the 2009 “millionaire tax” increase, most of which had been repeatedly extended past its original 2011 sunset date. The new federal cap on state and local tax (SALT) deductions has added to the burden on New York’s highest earners, whose taxes finance a disproportionate share of the state budget. Yet some lawmakers were clamoring for higher taxes before the pandemic, despite the SALT cap’s impact. In a state already notorious for its heavy taxes, it should go without saying that further tax hikes would undermine New York’s competitiveness and future growth prospects.
Upshot — The just-enacted FY 2022 state budget raises taxes by $3.4 billion, rising to $4.3 billion in FY 2023, while boosting state spending to stratospheric levels that can’t be sustained after federal stimulus aid is exhausted in two years. In addition to higher tax rates on multi-millionaire earners—raising top rates in New York City to the highest level in the country—the budget legislation eliminated the scheduled 2025 “sunset” from the previously temporary 8.82 percent millionaire tax, and so effectively included the first permanent increase in broad-based state taxes since the late 1960s. The statewide corporate franchise tax rate also will be raised to 7.25 percent from 6.5 percent on firms with net profits above $5 million, supposedly expiring after three years.
Step 3 — Freeze public-sector pay across the board, postponing all scheduled base pay or step “increment” increases for a period of at least two years. This would save at least $1.9 billion in 2021 state and local fiscal years, reducing the number of layoffs and staff reductions necessary to close budget deficits. Based on long-established precedents dating back to New York City’s brush with bankruptcy in the mid- 1970s, the governor and the Legislature clearly have the authority to pass a law imposing such a freeze in response to a severe fiscal emergency.
Upshot — Soon after the start of FY 2021 last April, Cuomo temporarily froze scheduled pay increases for state government workers, extending the freeze through early this year, but lifting it after the federal government provided the state with $12.6 billion in unrestricted stimulus aid. Roughly $600 million in retroactive pay hikes will now flow to state government employees, including those who have not been required to appear at their offices in more than a year. At the same time, throughout the past year, salary and step increases have continued to flow on schedule for public-sector workers across the state.
Step 4 — Provide local governments with relief from costly state mandates, concentrating on rules covering personnel, procurement and contracting. Building on the pay freeze, municipalities and school districts need greater flexibility to deploy their workforces more efficiently than allowed under current contract provisions effectively locked in place by state law.
Upshot — No local government mandate relief was enacted or even proposed by the governor or any lawmaker in either party in Albany.
Step 5 — Reduce government operating budgets by eliminating non-essential programs and contracting out services and functions that can be provided more cost effectively by the private sector.
Upshot— Across New York, the state and local government response to the pandemic consisted largely of routine and temporary belt-tightening. Payrolls were reduced through attrition, leaving positions open once vacated, and through suspension of seasonal hiring. Operating budgets were not reduced in the long term.
Step 6 — Redirect scarce capital resources from amorphous “economic development” projects, which have claimed a growing share of the state capital budget, to core infrastructure needs such as transportation, water and sewer facilities, and to public facility improvements needed to preserve and enhance public services, build value and promote economic growth.
Upshot — Under the new state budget, all previously planned economic development capital spending will continue, with no significant uptick in state-funded infrastructure spending, other than continuation of tax- and ratepayer-subsidized capital investments in renewable energy projects such as wind turbines and solar panel installations.
Step 7 — Improve transparency and accountability, especially in the area of state finances, as recommended by state Comptroller DiNapoli. The Governor and the Legislature should abide by the financial reporting deadlines they have repeatedly ignored in recent years, and additional financial updates should be issued to explain every step of any budget adjustments sought by the governor under the temporary powers granted to him in the 2021 fiscal year.
Upshot — There have been no significant improvements in transparency or accountability. The governor did file his mid-year financial plan update on time for the first time on record, while the Legislature as usual failed to produce financial reports or revenue estimates. However, in both his official reports and his public statements throughout the past year, Cuomo repeatedly misrepresented and distorted the actual financial condition of the state. He vastly inflated the state’s pandemic-related budget shortfall, repeatedly citing a “$15 billion deficit” in an apparent effort to wring more aid out of Washington. His claims of poverty and warnings of budget cuts that never came served mainly to stoke demands from labor unions and urban left-progressives for massive tax hikes.