NY budget hole shrinks, but problems loom as Cuomo readies plan

ALBANY — Thanks to an influx of federal funds and a gradually improving economy, New York’s budget hole isn’t what it used to be.

It has shrunk by at least half since Gov. Andrew M. Cuomo pegged it at $8 billion for the current fiscal year, which ends March 31.

But New York still faces major economic problems and a huge policy battle when state lawmakers begin to confront the state’s financial situation Tuesday.

It’s a budget crisis that will test just how far Democrats, who control all the levers of power in a blue state, will be willing to go to deal with the financial impact of the pandemic.

Cuomo is expected to unveil his proposed budget Tuesday, likely tapping into some of the help Washington has provided already and counting on more.

The governor had said New York had an $8 billion budget hole for its 2020-21 fiscal year. But recent cash influxes have pushed down that number.

First, state Comptroller Thomas P. DiNapoli issued a report in November saying New York tax revenue was coming in higher than expected — nearly $4 billion more than initially projected last spring. That should cut the state’s budget hole in half, officials said.

"We’re now down to $4 billion for the remainder of the year," Senate Finance Chairwoman Liz Krueger (D-Manhattan) said recently on The Capitol Pressroom, a public radio program broadcasting from the State Capitol. "Four billion is still scary — but not as scary as $8 billion."

The Cuomo Budget Division said that even if the revenue picture has improved since spring, New York could still finish the fiscal year with $12 billion less than the previous, non-pandemic year. That's a different number than the overall budget shortfall and doesn't address federal aid received.

"The governor will introduce his executive budget by [Tuesday] where he will lay out a plan to address the COVID-19 revenue shortfall and resulting deficit," Freeman Klopott, Budget Division spokesman, said in an email. "As we've said the federal government must follow through on its promise to deliver funding so that the state can continue to support critical services and lead the national recovery. In the absence of federal funding, the state will consider spending reductions, borrowing and revenue increases to close the deficit."

Federal aid already has helped the picture.

In December, Congress approved another stimulus package that will send about $4 billion to New York State school districts for K-12 education, according to U.S. Sen. Chuck Schumer (D-N.Y.).

Lawmakers have suggested that that pool of aid could make up for reduced spending Cuomo has implemented this year and/or be applied to help cover the state share of education spending for fiscal 2021-22.

The package also included $4 billion for the Metropolitan Transportation Authority, the parent of the Long Island Rail Road, Schumer said.

In addition, President-elect Joe Biden said he’ll advocate a plan to increase the federal government’s reimbursement of state and local governments’ COVID-19-related costs. That would mean another $2 billion for New York — if approved, Schumer said.

Moreover, the federal government's decision to loosen restrictions on how states use pandemic aid has come into play: New York recently used $1.3 billion from its share of federally backed "Coronavirus Relief Fund" to pay personnel costs for the Department of Corrections and Community Supervision.

Depending on how the Cuomo administration uses the federal aid from December, the state budget hole for the current year could be anywhere from $4 billion to almost zero, according to E.J. McMahon, a former Assembly Ways and Means Committee staffer and a budget analyst with the Empire Center, a fiscally conservative think tank.

And the projected shortfall for next year could be down from the $15 billion or $16 billion Cuomo previously warned about to $12 billion or less, just based on the DiNapoli revenue estimate. That puts it close to what Cuomo inherited when he first took office in 2011. It could be even less if revenue continues to come in at rates better than last spring’s projections.

"I’m not saying there is no problem or the problem is minor," McMahon said. It’s just not what it once was, he said.

Back in 2011, Cuomo began favoring tax cuts and freezing state spending to deal with a $10 billion shortfall. Later that December, he agreed to Democrats’ call to hike tax rates for the super wealthy.

Now, Cuomo is saying it might take a combination of tax hikes, spending cuts and borrowing.

The state Assembly, typically the more liberal legislative house, has been out front calling for raising rates on the rich again. Some propose different rates for households earning $1 million, $5 million and $10 million annually. Assembly Speaker Carl Heastie (D-Bronx) wanted lawmakers to consider doing so before Dec. 31, though Cuomo successfully pushed it aside.

State Senate Majority Leader Andrea Stewart-Cousins (D-Yonkers) also has expressed the need for higher taxes on the wealthy.

Cuomo, while painting tax hikes as likely, also has downplayed the amount of money those increases would generate and questioned whether the hikes would drive further out-migration from New York. He’s also held out on taking any actions — tax hikes, spending cuts — before Biden takes office and possibly pushes through more stimulus money to help states.

And if Cuomo and legislators differ on how to change tax rates, Democrats have supermajorities (two-thirds of members) in the Senate and Assembly, following the election. That gives the ability to override a gubernatorial veto if it ever comes to that.

Officials are downplaying that likelihood, but even so a supermajority strengthens house leaders’ negotiating stances.