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Cuomo bet the budget on D.C. bailout. Can NY count on that?

A coalition of activists, parents, students, and educators

A coalition of activists, parents, students, and educators protest Gov. Andrew M. Cuomo's decision to withhold 20% of state aid outside his office in Manhattan on Sept. 8. Credit: Sipa USA / Gabriele Holtermann via AP

ALBANY — Gov. Andrew M. Cuomo bet the house that a Joe Biden presidential victory would take care of his pandemic-driven budget problems.

But even that might not fix New York’s multibillion-dollar budget gap.

Which party will control the U.S. Senate remains unclear — as do prospects for a bailout for state governments. Senate Majority Leader Mitch McConnell (R-Ky.) has softened his opposition and raised the possibility of another stimulus package before New Year’s Day. But the issue remains in flux.

Cuomo and state legislators have gotten through since April by trimming spending, borrowing, using about $5 billion from the initial federal stimulus and crossing their fingers for more help from Washington.

But budget hawks and progressives alike are wondering how long the state can wait before making painful cuts or raising taxes.

"The state fiscal problems are very likely to outlast whatever federal aid package there is," said Dave Friedfel, an analyst with the Citizens Budget Commission, a fiscal watchdog group. "The numbers are so severe, I don’t see how they get through this without curtailing spending. And the tax proposals they are talking about aren’t enough to close the gap immediately."

Here’s what’s happened so far: Besides the initial federal stimulus, the Cuomo administration borrowed $4.5 billion last spring to get through cash-flow problems caused by pushing back income tax deadlines two months.

Then, the governor began reducing spending, about $4.3 billion through October. The state froze hiring, pay raises and new contracts. It also made local governments share the pain by withholding $2.3 billion in aid through October.

Among the biggest withholdings: $486 million to higher education, $457 million to transportation and $300 million to K-12 education.

Still, the state is facing a budget shortfall when New York’s fiscal year ends March 31. The Cuomo administration earlier this year estimated it at $8 billion.

But in the one piece of good economic news, state tax revenues are bouncing back faster than projected in April.

Earlier this month, state Comptroller Thomas P. DiNapoli reported tax revenues are projected to come in nearly $4 billion higher than originally estimated.

That’s a "big improvement over the governor’s worst-case scenario," E.J. McMahon, analyst with the fiscally conservative Empire Center think tank in Albany, wrote following the comptroller’s report.

If realized, it could cut the year-end budget gap in half. McMahon noted the state’s boost has been driven largely by a Wall Street recovery since April.

Even with the improvement, the state still has a gap it’s looking to Washington to fill. Cuomo believes the state’s chances are "certainly" better under Biden than they were under Republican President Donald Trump.

"Biden is by definition collegial and unifying, and that's going to make all the difference," Cuomo said two days after Election Day in a radio interview.

Federal negotiations had stalled because of opposition from Republican senators. Cuomo believes that might change now.

"I’m telling you, even the Republican states need help," the governor said.

Cuomo is slated to unveil a new budget proposal, for the 2021-22 fiscal year, in January. As his administration has done since the pandemic began, it warned of deeper cuts if there isn’t a bailout.

"The only alternatives to federal funding are spending reductions — a devastating impact on schools, hospitals, police and fire departments, along with other critical services — long-term debt and revenue raisers that may impact our competitiveness and weaken New York State’s ability to lead the national economic recovery," Robert Mujica, Cuomo’s budget director, said recently.

The State Legislature isn’t scheduled to convene until January. Already, though, members have been floating an array of "revenue raisers" for the state, including expanding online sports gambling, hiking special real estate and stock market taxes, raising income tax rates for the super-wealthy and legalizing recreational marijuana.

Bracing for the possibility of cuts — and campaigning fiercely against it — a coalition of education groups released a report Thursday saying further reductions would be "devastating" to schools.

"In these unprecedented times, schools need more support, not less," said John Yagielski, chairman of the Education Conference Board. "Over the past months, schools have supported families, teachers, staff and communities in astounding ways, and now is the time for our state policymakers to support them back."

They aren’t the only ones making recommendations.

The state Association of Counties made 80 suggestions, including ending the practices of diverting sales taxes from the counties and imposing minimum jail staffing requirements when inmate populations are declining.

The Citizens Budget Commission recommended the state tap into its "rainy day" funds and halve the amount it doles out in discretionary grants to high-profile development projects, which have a checkered record of success.

CBC also said the state should consider selling some of the 19 golf courses it owns. "That real estate has tremendous value and if the state is in a financial bind, it might look to sell," Friedfel said.

In the Democratic-controlled legislature, the call for "revenue raisers" is louder than for cuts. These include sports betting, marijuana, a stock transfer tax, a condo/second-home tax and higher taxes on households earning $5 million annually or more — a so-called super millionaires’ tax. The latter gained momentum in September when New Jersey took such action.

Some are backing legislation to establish a "Billionaire's Tax and Worker Bailout Fund" which would tax unrealized capital gains and amend tax law so that those capital gains are counted as annual income.

So far, Cuomo has resisted such ideas, saying they would cause the wealthy to leave New York.

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