New York lawmakers are still at least a few days away from a deal on a state budget for the fiscal year that starts April 1, and they might yet get hung up on a few of the hot-button ethics and education reforms Gov. Andrew Cuomo has demanded.

But the most important financial details of New York’s next budget already have been settled — basically on Cuomo’s terms. And there’s some (mostly) good news: Spending growth will be kept below the governor’s 2 percent target.

The bad news?

The Democratic-controlled Assembly and Republican-run Senate have agreed to follow the governor’s lead by making three big moves — in the wrong direction.

First, the governor and the Legislature plan to use scarce state funds to partially compensate for high local property taxes, slapping yet another costly bandage on a gaping wound.

Cuomo’s idea is to create a personal income-tax credit — ranging from an average of roughly $700 upstate to $1,000 downstate — for New Yorkers whose property taxes exceed 6 percent of their incomes.

When fully implemented in 2019, the credit would redistribute about $1.7 billion to roughly half of New York’s homeowners (plus some renters).

That money could be better spent on permanently reducing income taxes across the board and ratcheting down the steep additional “millionaire tax” Cuomo has twice extended since late 2011.

But the Legislature, like the governor, is now less interested in creating a more competitive income-tax code than in creating the illusion Albany is actually doing something about high local property taxes.

The only question now, it appears, is not whether Albany will pass a new state-funded property-tax break, but how it will be structured.

The Assembly has accepted Cuomo’s tax-credit proposal, while the Senate prefers to send an average $458 rebate check to most homeowners.

Either way, the state will continue to spend more than $3 billion on the Pataki-era School Tax Reduction program, better known as STAR.

Result: By 2019, Albany’s will be shelling out more than $5 billion a year to dull the pain of high local taxes rather than curing the underlying disease: high local costs driven by state mandates, especially those related to collective bargaining.

A second mistake involves Cuomo’s plans for the state’s $6 billion windfall from fines and penalties paid by financial institutions that violated various federal or state laws.

New York’s critical mass-transit and highway systems have huge, partially unfunded capital needs.

Yet the governor wants to spend much of the windfall on lower-priority items, including $500 million for high-speed Internet broadband and $1.5 billion for “upstate New York economic revitalization” projects that, based on experience, are likely to include plenty of corporate welfare and capital pork.

Assembly Democrats have accepted Cuomo’s windfall spending plan with minor changes.

Senate Republicans want to add some municipal water and sewer infrastructure funding while curtailing the governor’s ability to divert the money for other purposes — but it now seems inevitable much of the windfall will be squandered.

A third wrong turn baked into the budget will perpetuate the state’s practice of deferring some required pension contributions.

Albany is already paying back $2.5 billion in pension deferrals dating back to 2011.

Because actuarial assumptions were recently changed to recognize that retirees are living longer, pension costs will be higher than Cuomo originally projected — and so now he plans to defer another $1 billion over the next four years.

The next bear market — a matter of when, not if — will not only drive up pension costs, but could also wreck the state’s revenue bottom line.

That’s because, thanks in part to tax policies perpetuated under Cuomo, the budget depends more than ever on the volatile incomes of the highest-earning 1 percent of taxpayers.

At one point, Cuomo threatened to hold up a budget deal this year if he didn’t win his non-financial priorities. As of Monday, however, it appeared a deal would come together sooner rather than later.

Either way, what the governor calls his “opportunity agenda” will also include some big blown opportunities.

About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

You may also like

How a Blast From the Past Could Save NYC Again

Forty-five years ago this month, then-Gov. Hugh L. Carey and the state Legislature passed a landmark law, the Financial Emergency Act, designed to rescue Gotham from imminent bankruptcy. Read More

The Numbers Debunk Cuomo’s SALT Gripes

For the better part of three years now, Gov. Cuomo has been pounding SALT — the federal income-tax deduction for state and local taxes. Read More

Washington shouldn’t fund NY’s “normal” budgets

With the coronavirus lockdown continuing to erode tax revenues, Gov. Andrew Cuomo has turned up the volume on his demands for a federal bailout of the New York state budget. In a weekend briefing, the governor repeated his estimate that the Empire State will need help closing a deficit of $10 billion to $15 billion. “I don’t have any funding to do what I normally do,” he said. Read More

Blame Cuomo for New York’s Medicaid crisis

When it comes to New York’s latest Medicaid mess, the buck stops with Gov. Andrew Cuomo. Read More

Cuomo’s Plate Spinning

Governor Cuomo’s license plate design contest was a PR ploy masking a nickel-and-dime revenue raiser. Read More

Cuomo’s incredible wind-power pander

New York's offshore wind project will demand massive subsidies—ultimately billed to ratepayers. Read More

How Cuomo is cooking New York’s books

When lawmakers in Albany passed the state budget last spring, Gov. Andrew Cuomo declared it “both timely and fiscally responsible.” Timely was true enough. But fiscally responsible? Not so much. Read More

Green Monster Could Eat NY

Gov. Andrew Cuomo said he wanted New York to adopt a limit on greenhouse gas emissions that’s “the most aggressive goal in the country.” Unfortunately for New Yorkers, state lawmakers took him at his word. The Climate Leadership and Community Protection Act now awaiting his signature vastly expands the state’s power to regulate every corner of New York’s economy in pursuit of lower emissions. Yet sponsors didn’t even bother to estimate its fiscal and economic impacts before rushing it through. Read More

Subscribe

Sign up to receive updates about Empire Center research, news and events in your email.

CONTACT INFORMATION

Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100
Fax: 518-434-3130
E-Mail: info@empirecenter.org

About

The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.