This week, the New York State Legislature gets to work on Governor Kathy Hochul’s proposed $227 billion budget for the fiscal year ahead. (It’s Fiscal Year 2024, and starts April 1st.) The governor touts her tax and spending plan as “investing in the New York Dream.” In reality, it falls well short of that goal. As proposed, it would instead continue a decade-long trend of State disinvestment in its people.

Recession anxiety sets the budget tone. State budget officials anticipate that a “mild” recession in 2023 will flatten tax revenues for the next two fiscal years and open up sizable outyear budget deficits. In response, Hochul proposes to reserve most of the current fiscal year’s $8.7 billion budget surplus. This, even though existing reserves are probably sufficient to weather a mild recession (which may or may not occur).

The governor’s budget does address a few of the State’s pressing challenges. She increases operating aid for the beleaguered MTA that is still suffering from significant pandemic-related ridership reductions, and she provides nearly a billion dollars to aid the thousands of asylum seekers streaming into New York City. (Tempering that good news is the governor’s expectation the City will also increase MTA aid by $500 million, and fork over to the State some federal pandemic Medicaid funds.) A 10 percent increase in local school aid would make good on a State commitment made in last year’s budget.

Nevertheless, the governor’s budget doesn’t really do much to “invest in the New York dream,” given rising poverty and economic hardships, and the tremendously lopsided economic impact of Covid-19 on low-income workers. As most forms of pandemic federal relief have ended, New York State’s income polarization – already the worst in the nation pre-pandemic – has accelerated. As the governor’s economic outlook budget report observes: “The top one percent of taxpayers accounted for 50.6 percent of adjusted gross income in 2021, the highest proportion yet.”

The budget does far too little to correct this imbalance. For example:

While it proposes a slight expansion in eligibility for child care assistance, it doesn’t provide for a meaningful increase in compensation for child care providers despite their current rock-bottom pay and huge challenges in attracting workers to that field. (There will be more on this in next week’s Urban Matters.)
It includes a one-time payment of $250 million in electric utility cost relief for moderate-income households, but does not increase the State Earned Income Tax Credit (EITC) or the State Child Credit or even continue the increases in those credits approved in last year’s budget.
Its plan to index the minimum wage is severely flawed, reaching only about one-third the number of workers who would benefit from the “Raise the Wage” proposal by the chairs of the Assembly and Senate labor committees and provide far skimpier increases in its first year of implementation. The governor’s plan neglects needed “catch-up” increases in light of the recent inflation surge.

And the governor proposes nothing to address the still-large unemployment insurance (UI) trust fund debt. A long overdue increase in the state’s UI taxable wage base could shift some of the UI tax burden from small to large employers as well as improve the state’s very mediocre UI benefits, in addition to reducing the trust fund debt owed to the U.S. Treasury.

The sad reality is that the proposed budget continues a significant degree of under-investment that has worsened over the past decade. As the chart below shows, from 2000-2011 State-funded budget spending averaged 6.8 percent of New York’s gross domestic product (GDP). Even assuming the state’s economy slows considerably in calendar year 2023, projected state spending in FY 2024 (most of which falls in 2023) would be an estimated 5.8 percent. That’s nearly $22 billion less than it would be if that spending-to-economy ratio were 6.8 percent, an indication of the extent to which New York has been disinvesting in its people over the past dozen years.

For the state to more genuinely address the needs of all of its residents, it should invest some of the funds the governor is proposing to hold in reserve. But even if it is deemed desirable to maintain that high level of reserves, the above chart shows that there is latitude to raise additional revenues given the capacity of the state’s economic base.

The governor’s economic outlook budget report documents New York’s declining state tax burden relative to personal income (which in fact overstates the tax burden since it doesn’t factor in commuter incomes or corporate profits): New York’s total tax burden ranked 15th highest among all states in 2010, but 20th in 2020.

In 2010, New York ranked 10th highest in state corporate taxes as a share of personal income. With corporate tax cuts enacted in 2013, that slipped to 23rd among all states in 2020. Moreover, total business profits relative to the size of state GDP rose from an average of 41 percent (2000-2011) to 45 percent (2012-2021).

Clearly, the corporate tax increase enacted in 2022 was overdue. The governor proposes that it be extended for three more years. In fact, it could be made permanent, and possibly increased further.

And one final observation on tax policy: The governor’s budget proposes a substantial increase in the already enormous $400 million annual film tax credit despite there being no real analysis establishing the need for the credit. That, instead of enhancing the state’s low-income tax credits.

Working people are still struggling to recover from the pandemic. The governor’s budget does not expect a return to pre-pandemic employment levels until 2027, seven years after the onset of the coronavirus.

In light of that, it’s now up to the State Legislature to act: to adjust the minimum wage for increases in the cost of living and the growth in labor productivity; raise pay for child care workers and correct pay inequities suffered by human service workers; fund housing vouchers for those at risk of eviction; raise the unemployment insurance system’s taxable wage base; and look at other measures to broaden access to “the New York dream” the governor aspires to.

Next week: Why the budget comes up short in meeting New York’s severe childcare crisis – and what the legislature can do about it.

James A. Parrott is director of economic and fiscal policies at the Center for New York City Affairs at The New School.

Photo by: NY Senate

Governor Hochul’s Budget Under-invests in the ‘New York Dream’