New York’s new budget — the actual state-government expenditure plan, that is, as opposed to numerous side issues packaged with it — apparently came in close to Gov. Andrew Cuomo’s bottom line.
Faced with a new Democratic majority in the state Senate, heavily populated by newcomers with a yen to spend, plus a Democratic super-majority in the Assembly that would prefer to tax and spend even more, Cuomo apparently didn’t budge by much.
The $102 billion state operating funds budget for fiscal year 2020 falls within the governor’s 2 percent growth cap, allowing for the usual creative accounting.
At the same time, among the assorted extras, the governor rammed through a budget-bill provision erasing the potential 2020 expiration date from his 2 percent cap in local property taxes, first enacted in 2011. Making the tax cap permanent — or harder to tamper with, at least — was a significant achievement for which the governor deserves all the credit he will claim.
But if Cuomo scored another short-term political win with this budget, he needs to be increasingly concerned about the Empire State’s long-term fiscal and economic outlook.
The year started on a shaky note with the governor’s disclosure of what he termed a “serious as a heart attack” $2.3 billion shortfall in tax receipts for December and January. He blamed the problem on President Trump’s 2017 tax reform and its cap on state and local tax deductions.
In reality, Cuomo’s initial financial plan — rushed out ahead of schedule in mid-January, before some crucial receipts numbers had come in — had simply missed the mark in important respects.
For starters, it underestimated the SALT-related acceleration in tax payments by higher-earning New Yorkers at the end of 2017. It also failed to anticipate the decline in net capital-gains income following the stock-market decline at the end of last year.
A few weeks after sounding his $2.3 billion alarm, Cuomo issued an updated financial plan estimating that the net revenue shortfall would turn out to be $900 million. That more manageable number was a worrisome symptom all the same.
Meanwhile, Cuomo’s most recent financial plan update forecasts a current services budget gap of nearly $5 billion for the fiscal year starting a year from now — an election year for the Legislature. Holding spending to 2 percent won’t be enough; unless revenues surge well beyond expectations, Cuomo will have to cut another $2 billion off the spending trend to avoid a deficit.
The governor has warned that New York depends heavily on high earners and that the new federal tax law and its $10,000 cap on SALT deductions “encourages high-income New Yorkers to move to other states.”
But if he’s truly concerned about out-migration, you wouldn’t know it from looking at the centerpiece of the new budget’s tax policy, which extends for five years a supposedly temporary $4.5 billion surtax on millionaires. At the worst possible time, Cuomo is perpetuating the state’s risky over-reliance on high-earners, including New York City residents who face higher combined federal, state and local income tax rates under the new federal law.
Cuomo also is committed to phasing in what will ultimately total $4 billion in income tax cuts for middle-class households, first enacted in 2016 but not due to be fully effective until 2025.
Yet with all that, he still expects personal income tax payments to bounce back this year and increase at a healthy pace of 5.2 percent a year thereafter. Based on recent experience, that looks optimistic — without even assuming a recession.
The other major tax actions headlined with the new budget — congestion pricing, higher taxes on high-dollar real estate transactions, sales tax on more Internet transactions — were targeted at New York City and designed to raise debt-backing revenue for the Metropolitan Transportation Authority’s capital plan. Their main effect on Albany finances will be to spare Cuomo the need to come up with more money for transit from existing state sources.
This points to the governor’s ultimate problem: By historical standards, his spending cap has been stingy. But it’s still not stingy enough.
This piece originally appeared at New York Post
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E.J. McMahon is research director at the Empire Center for Public Policy and an adjunct fellow at the Manhattan Institute.
This piece originally appeared in New York Post