In the midst of the Coronavirus pandemic that has sent the state’s finances into a tailspin, the Governor, Senate, and Assembly reached a final budget deal for the 2020 - 2021 fiscal year early this morning. The Governor stated that this is a robust budget for the times that we are in and thanked the Speaker of the Assembly and the Majority Leader of the Senate for their hard work in arriving at a timely and comprehensive budget agreement.
The Governor’s initial budget proposal from January contemplated a $178 billion spending plan. The final budget includes a spending number in that same range. However, this year’s budget includes an asterisk on all funding numbers. While this budget attempts to hold the line on many appropriations, it also includes language that if the budget is deemed to be unbalanced during three different review periods throughout the year, the budget director can withhold some or all of the appropriated amounts.
The budget director needs to consider many factors before making this determination, but it is within the director’s discretion to make cuts based on the financial situation of the state. Once the budget director has compiled the list of recommended cuts, he will send these recommendations to the legislature. The legislature then has 10 days to respond to the cuts. They can either do nothing, which would allow the budget director’s recommended cuts to proceed, or the legislature can approve an alternative plan to address the budget shortfall through a concurrent resolution. Any cuts done through a concurrent resolution would be final and not subject to a veto by the Governor.
One of the reasons that the budget numbers remained somewhat static from what the Governor proposed is because there is so much uncertainty around what will happen in the coming months. Hope remains that the federal government will act on another round of funding that will focus on state and local governments. However, if this doesn’t happen and no money is allocated to New York, there will need to be at least a 6.7% decrease in funding this year. Any funding that is received will be used in areas of need and to restore funding cuts that may have been instituted.
The final budget proposal also has provisions that allow New York to do short term temporary borrowing. These provisions were needed because there is no revenue coming into the state at this time. In addition to the economy being shut down, the tax revenues that would usually arrive in New York on April 15 have been delayed until July 15. To cover this revenue gap, the short-term financing was approved. There was also language included giving the Dormitory Authority and the Urban Development Corporation the authority to authorize a line of credit to the state.
The two biggest expenditure areas in New York are in the area of healthcare and education. One of the main priorities for the Governor in his proposed budget this year was finding a way to reduce the cost of Medicaid in New York. He sought to reduce these costs by creating the Medicaid Redesign Team (MRT) II, which was tasked with reviewing recommendations and proposals that would cut $2.5 billion in spending from New York’s Medicaid program. The MRT II issued their cost saving recommendations in mid-March. The work of the MRT II started before the current public health crisis.
In one of the federal bills dealing with funding to combat the Coronavirus, there was language that said a state was eligible for increased Medicaid funding, but in order to receive this funding, no changes could be made to their existing Medicaid programs. Per this federal legislation, New York is slated to receive in the ballpark of $6 billion in funding to help offset the costs of treating Coronavirus patients. However, the changes proposed by MRT II would be changes to the existing Medicaid program and thus make New York ineligible for funding if implemented.
Initially, the Governor had said that New York could not take the federal money because in order to close an existing hole and move forward in New York, the MRT II recommendations had to be implemented. In the end, the Governor, Senate, and Assembly agreed to many of the MRT II recommendations. In addition, they believe the state will still receive the funding from the federal government because the agreed upon recommendations will be phased in over time in a way that should not jeopardize the federal funding.
The other major spending area in New York is education. The Governor’s budget proposal in January included a 2% education spending increase for this fiscal year. The Senate and Assembly usually negotiate an even bigger increase to education spending in the final budget. This year, there was not an increase in the funding proposed by the Governor, and $27 billion has been allocated to education in New York. As with all spending areas though, this allocation has the asterisk that will allow the funding to be reviewed over the course of the year and adjusted as necessary to reflect the actual revenues that are being received by the state.
One other major issue that was addressed in the budget dealt with bail reform. During the 2019 session, a comprehensive bail reform bill was passed that eliminated cash bail requirements for all misdemeanors and nonviolent felonies in New York. The new law took effect on January 1 of this year. Once in effect, there was a public outcry as stories were written about people being released without bail for crimes that some felt should still require bail. There was no certainty as to whether changes to the bail reform law would occur, but in the end, the compromise was that the list of crimes that require bail considerations was expanded to include some of the more serious crimes that were not originally included.
Another initiative that was included in the final budget was the Restore Mother Nature Bond Act. This is a $3 billion bond act initiative that would be used for infrastructures that protect communities, clean water, parks, restoration and flood risk reduction, water-quality improvements, and other key environmental initiatives. In order to be approved, the voters of New York must approve this on the November ballot. The language outlining the priorities and how the money will be spent also includes a provision that would allow the vote to be withdrawn or delayed if the state’s fiscal situation worsens and doesn’t support the borrowing.
Many of the Governor’s other priority items that were outlined in his proposed January budget were also included in the final budget. Some of those items included adding “e pluribus unim” to the state seal, authorizing the use of e-bikes and scooters, a prevailing wage requirement for some projects that are supported by public funding, and a ban on Styrofoam that will take effect in 2022.
As important as what was included in the budget is what was not included in the budget. The final budget deal did not include a proposal to legalize recreational marijuana in New York or a proposal authorizing online sports betting. The final budget also did not include any new taxes on millionaires or billionaires as had been proposed by several members of the Senate and Assembly.
These items are likely to be back in the mix in the next budget cycle or if the Senate and Assembly return to session. At this time, it is unclear if or when the Assembly and Senate will return. The final budget included extensions for numerous laws that were scheduled to sunset and reauthorized a wide variety of local laws and taxes, which means that there won’t be pressure to return to deal with these time sensitive issues. However, there are many priority policy items that never got addressed. There is also the possibility that they will need to come back to deal with other outstanding budget issues that may arise that have not yet been contemplated. The thought is that there may be a shortened session in the fall to address these issues.
It is also important to remember that this is an election year for all 213 members of the New York State Assembly and Senate. For now, the primary elections will be held on Tuesday, June 23, 2020. The general election will be held on Tuesday, November 3, 2020, which is also when we will have the Presidential election.
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