It’s a political truism that budgets are about priorities. This week, Governor Hochul will show New Yorkers hers. The debate over the governor’s budget plans will be the most critical action of the current legislative session.
The state’s finances had been fragile going into the pandemic and were made much, much worse during the COVID lockdown in 2020. Going into last year’s budget, the state was facing a $15 billion deficit.
Yet tone yearlater, Albany is breathing easier thanks to tough state budget decisions as well as massive financial assistance from the federal government. The federal aid (over $12 billion) fueled a dramatic increase in the size of the state’s budget. Last year, the state’s budget grew to $212 billion, a ten percent increase from the previous year.
In addition, state lawmakers agreed to a budget that added two tax brackets which increased taxes on rich New Yorkers making over $5 million.
The impact of federal assistance and state budget decisions – coupled with a booming stock market – have resulted in an enormous financial turnaround. Instead of a state teetering on the financial brink, Albany is now sitting on a big surplus that looks like it will last through 2025.
Last week, state Comptroller DiNapoli released an update on New York’s budget. According to the Comptroller, state tax revenue exceeded its forecasts by nearly $13 billion. New York’s personal income tax receipts for the first three quarters totaled $49 billion and continue to exceed the most recent projections by $1.9 billion. Income tax revenue has been boosted by a strong stock market and higher taxes on millionaires.
Wall Street profits for the first half of 2021 surged to $31 billion before taxes from a year earlier, a gain of 13%. Those strong profits boost income taxes paid by Wall Street traders.
Despite the glowing report, the Comptroller urged budgetary caution. A substantial portion of those strong number may have more to do with the timing of when those taxes were paid. Thus, those big surpluses may be smaller once the final numbers are in.
In addition, the Comptroller stated, “Tax collections performed well in December, and the state’s economy and finances continue their recovery. But there is continuing uncertainty about the impact of the ongoing Covid-19 surge, economic risks, and the need for continuing financial support for those still struggling to find their footing.”
There is no denying, however, that the report is overall positive news for the governor. Budgets with surpluses still force tough decisions. There are unlimited budget demands, but there are only limited resources. However, negotiating a budget with a surplus is less tense than negotiating one with a deficit.
The Comptroller’s report must have eased some of the Hochul Administration’s anxiety as it approaches release of its first budget. The new governor will have to tackle real budget problems, but she will be doing so from a position of financial strength.
The governor gave the public an inkling of her budget plans when she released her State of the State message two weeks ago. Expect big spending on health care and education – the two largest sectors of the state budget in any year. Given the challenges facing health care providers, the cost of dealing with COVID in K-12 schools, and higher education institutions facing the financial abyss, an infusion of additional state support can make all of the difference.
But the needs exceed the state’s financial grasp even though its coffers are flush. A big question will be what does the governor propose to ensure financial accountability? Does she develop ways to measure the state agencies’ performance? Does she propose a climate scorecard to measure the state’s progress toward its environmental goals? While no one challenges the need for additional support for health care, going into the pandemic, New York’s hospitals performed near the bottom of the nation in terms of federal quality of care data. Will the Hochul health plan include measures to strengthen medical care?
These questions and more will soon be answered. Once the governor shows us her priorities, it will be up to the rest of us to embrace those that are shared by the public. And it will be up to the rest of us to make sure that budgetary priorities are matched with improved performance.