Governor Andrew Cuomo delivered his proposed 2021 – 2022 State Budget presentation today. He focused on how this would be a different type of budget this year because of the effects of COVID-19, and the $15 billion budget deficit we face. He emphasized that assistance from the federal government would be necessary to overcome this deficit.
The Governor noted that President-Elect Biden’s American Rescue Plan includes state and local funding of $350 billion, but it is unclear how this funding will be distributed. The Governor stated that a budget proposal has been developed that contemplates a worst-case scenario of New York only receiving $6 billion in federal assistance and a better scenario where New York receives $15 billion in federal assistance. Under the worst-case scenario, New York would have to implement $9 billion in revenue raisers and cuts. These cuts would be across the board to all areas of funding, including education and healthcare. The Governor stated that these cuts would hurt New York’s long-term recovery.
Under the scenario where New York receives federal funding of $15 billion, New York would be able to restore all cuts made to date and increase funding in the critical areas of education and healthcare. In addition, the state would be able to pursue initiatives to fund rental assistance, fully fund higher education, and provide funding for childcare in New York. The state would also be able to pursue the Pandemic Recovery and Restart Program, which totals $130 million and would provide $50 million in assistance to restaurants, $50 million to small businesses (so they can rehire employees), and $30 million to music and theater programs.
The Governor also outlined two revenue raisers to supplement the federal assistance. The Governor will propose an adult-use cannabis program that will raise $350 million in revenue. Of this $350 million, $100 million will be dedicated to a social equity fund. He also proposed mobile sports betting, which will raise $500 million in revenue. Under the Governor’s plan, the state will run the mobile betting service in the same manner that it runs the New York State lottery. Under proposals introduced in the Senate and the Assembly, the mobile sports betting would be run by the casinos licensed to operate in the state. This will likely be a point of negotiation on this issue.
The Governor also made an impassioned plea to the federal government to reinstitute the State and Local Tax (SALT) deductions. A cap was placed on the SALT deduction by the federal government in the last round of tax changes. By all accounts, the elimination of the SALT deduction has disproportionally impacted New Yorkers, costing New York taxpayers approximately $12.3 billion. The Governor stated that if there is not fairness from Washington in the form of assistance and reinstatement of the full SALT deduction, he will sue the federal government to seek fairness for all New Yorkers.
While the Governor did not get into the specific numbers in his budget address, his budget director held a briefing to provide specifics. The Governor will propose a budget totaling $192.7 billion, based on receiving $6 billion in federal assistance. If New York receives the low end of the federal funding, the additional $9 billion in needed funding will be achieved through $1.5 billion in education cuts coupled with cuts to healthcare and all other budget areas. This proposed budget also would rely on raising $2 billion through a tax on high income earners in New York and pausing a middle-class tax cut that was to be phased in this year.
If the federal government dedicates $15 billion to New York, the across the board cuts will be eliminated. In fact, funding in many areas, including for education and healthcare, will increase. In addition, there would be no need to enact the income tax increase on high earners and to pause the middle-class tax cut.
It is important to note that if the federal government does not allocate $6 billion to New York, the proposed cuts will become even steeper. Further, if the federal government does not act by March 31, which is the budget deadline for New York, the final budget will need to include contingent language that gives New York the ability to adjust the spending plan accordingly.
Overall, the 2021 – 2022 spending plan is more fluid than anything we have ever seen before, and details and proposals will change as the fiscal outlook and federal action become clearer. In the meantime, the Assembly and Senate will spend the next few weeks holding budget hearings to receive testimony from groups in support and opposition to the Governor’s various budget proposals.
After the conclusion of the budget hearings, the Assembly and Senate will begin the process of putting together their one-house budget proposals, which outline each respective house’s budget priorities. These one-house budget bills will be released in early March. Once released, the joint budget committees will convene, and negotiations will begin between the Assembly, Senate, and Governor with the goal of completing the negotiations by April 1 so there is an on-time budget for the state. Again, even with a “final” budget in place this year, it is very likely that the budget situation will remain fluid and subject to change.
We expect that the budget language will be released sometime within the next day.
If you have additional questions about this update, please reach out to a member of our Government Affairs practice group for assistance: