Despite a relatively strong economy, New York State will find itself in a strange position next year—staring down a $6 billion budget deficit. The gap comes even as tax revenue remains stable, and a recession that would scramble the state’s economic picture seems less likely to happen. So what gives?
The deficit, which revealed itself after the passage of the $176 billion state budget at the end of March and grew throughout the year, is almost entirely the result of rising Medicaid costs, according to policy experts. Each year, Medicaid has become a larger share of the state budget, driven by local and national forces.
Governor Andrew Cuomo and state lawmakers are under pressure to balance the budget next year. Can these costs be controlled? Should revenue be raised elsewhere through more taxes on the rich? Will a Democratic-controlled government be forced to make cuts to cherished programs?
“This is a crisis that came up really quickly because the budget office wasn’t being very forthcoming about what was percolating under the surface,” said James Parrott, the senior director for economic and fiscal policies at the New School’s Center for New York City Affairs.
More than 6 million New Yorkers are on Medicaid, which has meant just 4.7 percent of the state is uninsured, a historic low. The implementation of the Affordable Care Act drove some of the costs of Medicaid, according to Parrott, as more and more New Yorkers enrolled. Though Medicaid is a federal program that provides low-cost, comprehensive healthcare to the poor, the state still picks up almost half the costs, with county governments also bearing a small share.
Parrott also blamed arcane funding formulas, like the state paying Medicaid costs for relatively wealthy, private hospitals that don’t need the aid in the first place.
E.J. McMahon, the founder of the Empire Center for Public Policy, a fiscally conservative think tank, said Cuomo has the power to almost unilaterally control Medicaid costs without the legislature’s input. Citing recent research from the think tank, McMahon argued the Cuomo administration created the budget gap by postponing certain Medicaid payments, failing to account for the rising minimum wage, and approving rate hikes for hospitals and nursing programs.
Meanwhile, Cuomo has held to self-imposed caps on state spending and property tax hikes, putting additional strains on local governments trying to fund municipal services.
“This is going to test his commitment to holding the line on taxes and spending,” McMahon said.
The Cuomo administration has not yet indicated how exactly it plans to tackle the budget deficit.
Freeman Klopott, a spokesman for the state’s budget division, said the Cuomo administration is already controlling costs, pointing to Medicaid growth in New York that is less than half the national average.
“While Medicaid spending is projected to grow at about 6 percent annually nationally, we are developing a plan to be introduced in January that will once again limit New York State’s Medicaid spending growth and continue high quality care for six million New Yorkers without raising taxes to cover the cost,” he said.
Historically, Cuomo has resisted raising taxes on the wealthy, a priority for more progressive members of the Democrat-controlled State Senate and Assembly. “I don’t believe raising taxes on the rich. That would be the worst thing to do,” Cuomo said in February.
Though individual state senators are open to raising taxes or creating new ones to close the deficit—Gustavo Rivera of the Bronx tweeted he would support reinstating the stock transfer tax and creating a new bracket for earners making over $5 million, among other proposals—the leadership of the chamber has been more noncommittal.
Andrea Stewart-Cousins, the Senate majority leader from Westchester, said her first “fallback” would be not raising taxes. Some senators are reluctant to raise taxes in an election year, especially in suburban swing districts. A decade ago, Democrats lost their majority after pursuing tax increases, though the political circumstances were different then. That election coincided with a midterm Republican wave nationally and the Democrats had a smaller majority. This time around, a mass exodus of Republicans could lead to a Democratic supermajority by 2021.
“There are many options available for addressing the potential revenue shortfall, and choices will have to be made, as always,” said State Senator Liz Krueger, a Manhattan Democrat and chair of the Senate Finance Committee. “All these options will have to be discussed by the Senate Democratic conference, as well as among the legislative leaders and the governor. That process is in the very early stages.”
Carl Heastie, the Assembly Speaker from the Bronx, said his conference would pursue raising taxes. He did not say what form these proposals would take. Historically the Assembly, with its overwhelming number of Democratic members, has been more willing to pursue tax hikes since Democrats there don’t have to worry as much about placating a suburban constituency.
Robert Carroll, a Brooklyn Assemblyman and critic of the governor, suggested there are a variety of revenue raising paths the legislature could take, as well as tackling thornier issues, like equalizing school funding so wealthier districts aren’t taking a disproportionate share. Carroll said legalizing and taxing marijuana, along with introducing taxes on pricey second homes, online deliveries, and news fees associated with for-hire vehicles, could help to close the gap, in addition to raising income taxes.
All of this comes to a head early next year. In January, Cuomo will present his plan for addressing the shortfall and the Democrat legislative leaders will negotiate with him afterwards, with a new budget due at the end of March. Cuomo has always exercised great leverage over budget negotiations with the legislature and 2020 isn’t likely to be any different.
“I think we should look at lots of creative ideas for revenue increases,” Carroll, a Democrat, said. “I’m never against saying, ‘Hey you know we can spend some money a little smarter here or there, cut waste here or there.’ That’s different than saying, ‘let’s cut six billion dollars of services.’”
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