With Congress stalled on a bailout package, New York’s financial situation is becoming increasingly dire. As the feds debate, in the meantime, the state is withholding support for local governments and non-profits that provide services. That “withholding” can turn into cuts as local governments cut back on assistance.
First, some background. Due to the pandemic, New York State is projected to bring in almost $15 billion less than it planned to spend. The governor estimates that the state budget deficit over the next four years will exceed $60 billion. The financial pain includes the yawning budget gaps of local governments and other public entities. According to the governor, the state needs some $50 billion from the federal government to cure the state’s budget woes and provide relief to the MTA, Port Authority, and other agencies.
So far, the Cuomo Administration has “withheld” about $1.9 billion in payments to localities, school districts and nonprofits. The Administration has been clear that the money being “withheld” could become permanent cuts if there is no additional federal aid.
That policy of “withholding” funds is part of a plan to drastically reduce state spending unless the federal government provides help.
With the opening of the school year, the Cuomo Administration was reportedly considering “withholding” a portion of its $3 billion payment to schools in September. But before the Administration could act, the teachers union challenged that possibility in court.
That legal challenge was immediately followed by the governor’s office announcing it would in fact disburse all the September school aid.
The teachers union contended that the contemplated reduction in state school aid was an illegal cut—that massive cuts to schools undermined the state’s constitutional obligation to guarantee students get a “sound basic education.”
And while the harm to school children was, at least to some extent, averted for now, the larger question remains: How will the state address its budget problems?
While action by the federal government could ease the state’s financial plight, no one expects the federal government to eliminate New York’s—and the rest of the nation’s—budget deficits.
So far, the Administration has not advanced a comprehensive plan to address its budgetary problems. They have said that they will do 20% across-the-board cuts to services. That would be both devastating and unfair. After all, not all programs are of equal importance.
In terms of raising revenues, the governor has said little other than he is concerned that the wealthy and powerful will leave the state if their taxes go up.
So, if large cuts are devastating and the governor does not wish to ding the wealthy, how does the state balance its books?
Some proposals being floated would raise costs on middle income New Yorkers. Last week, a plan was advanced that would increase the cost of heating homes and driving cars in New York. Earlier this year, the governor proposed to keep raising public college tuition. You get the picture: If the wealthy threaten to leave, New Yorkers currently struggling to pay their bills will have more costs added to their burden.
Will the rich leave New York if taxes go up? The governor says the wealthy—many of whom are riding out the pandemic from second homes—told him higher taxes will drive them out of state. But what does history tell us?
It is true that a small number of very wealthy people already provide considerable revenues. For example, in 2016, 32 percent of all of New York City’s reported income—more than $100 billion—came from just one percent of the City’s 2.6 million taxpayers. Roughly 1,500 New Yorkers reported an income of over $10 million annually. Would they really leave if state tax rates were raised to match those in California or if rates were like New York in the early 1980s (during the last fiscal crisis)?
Last week, New Jersey raised its income taxes beyond those in New York State. New Jersey’s budget deal boosted taxes on people earning between $1 million and $5 million a year. The Cuomo Administration noted that if one adds the income taxes charged by New York City (which has its own tax and where most of the wealthy have residences), the effective rate for them is comparable to New Jersey’s new rate.
Of course, that ignores the wealthy that live outside of New York City. But the question remains, who will pay to make up the state’s recurring budget shortfalls?
If New York State matched New Jersey’s top rate that could bring in more than $5 billion, making up one third of the state’s annual budget shortfall.
There is no magic bullet. New Yorkers will take a hit because of the state’s deficits. The question for the governor though is who will bear the biggest share of that pain—low, moderate, and middle-income New Yorkers, or the wealthy? On whose backs should the budget be balanced? The way things are going, New Yorkers may not know until after the November election.