Economic fallout from Iran conflict intensifies Albany's focus on affordability

ALBANY — The rapid economic fallout from the Iran campaign is refocusing attention on rising costs at a time when affordability was already at the top of the agenda in Albany.

"We are now going to see a spike in energy costs and that’s going to hurt utilities. It’s going to hurt gasoline at the pump, and think about our farmers, our manufacturers, our small businesses," Gov. Kathy Hochul said last week at an event on rising costs associated with the Trump administration’s increased tariffs. "At a time when we're fighting the high cost of living and focusing on affordability, there’s so many factors outside of our control."

New York lawmakers have called "affordability" their top priority as they negotiate the state’s more than $260 billion budget, due April 1. Proposals include increasing subsidies for child care, lowering the cost of car insurance, freezing state college tuition and eliminating taxes on tips.

Hochul has also called for pausing the state’s climate goals as utility bills soar — a proposal the legislature has pushed back on. The State Senate and Assembly in their budget proposals presented additional utility relief, with the Senate calling for $200 million for a home energy savings program for low-income New Yorkers and the Assembly proposing $2.6 billion in energy rebate checks. 

The longer the Middle East conflict continues, the more it will affect the economy and the more lawmakers will feel pressure to do what they can to help, said Blair Horner, senior policy adviser with the New York Public Interest Research Group.

"That pressure can show up in many ways," he said. "For example, making it easier for consumers to buy products that don't rely on oil and gas, as well as ways to reduce the cost burdens of products generally."

Pressure to act

Lawmakers also could face pressure to suspend excise and sales taxes on motor fuel, which the state did for seven months in 2022, E.J. McMahon, adjunct fellow at the Manhattan Institute for Policy Research told Newsday.

A similar freeze would cost $600 million and be a "terrible idea," he said. "There’s no way to ensure that much if not most of the 16 cent-per-gallon benefit would simply be pocketed by gasoline retailers."

There’s no significant indication yet that lawmakers will dramatically overhaul their spending plan, but that could shift with rising inflation forecasts and chances for a recession rise, economists told Newsday.

Hochul and all 213 seats in the State Legislature are up for election in November.

If the economy cools down, it could reduce the state’s tax revenues, and any actions lawmakers take to further help with affordability could lead to greater deficits, said Anoop Rai, a Hofstra University finance professor. "Then it becomes more like a philosophy. Do you help now during bad times and then try to recover later, or stick to your principles and say 'tough luck'?"

'Another layer of difficulty'

The cost of crude oil, which ultimately affects gasoline and home heating oil prices, inched up after the Feb. 28 attack on Iran, threatening supply lines and increasing energy prices worldwide.

"It will impact every aspect of the economy, every corner of the economy because oil and gas ... are inputs in every activity," said Kajal Lahiri, a University at Albany distinguished professor of economics. 

The rise makes it more expensive to produce and transport goods, an issue that’s compounded by escalating costs associated with federal tariffs on imports, economists said.

"It’s just going to add another layer of difficulty for people who are trying to make ends meet," Senate Deputy Majority Leader Michael Gianaris (D-Astoria) told Newsday.

"We are tackling so many different aspects of affordability in this budget, so certainly, I think anything we can do to help people along," he said when asked about additional steps lawmakers could take in the budget. "It’s just that the problem, which was already acute has become that much more difficult now."

Gianaris also stressed the importance of proposals such as a free bus pilot to encourage people to take mass transit.

"This war in Iran will have horrible implications on the affordability for all citizens," Assembly Majority Leader Crystal D. Peoples-Stokes (D-Buffalo) told Newsday. She said she "would not take anything off the table," when it comes to finding ways to decrease costs.

Debate over price increases

Republicans, when asked about the impact on affordability, blamed Democrats for rising costs, particularly energy costs as they look toward electrification in an effort to decrease emissions and fight climate change.

"They didn’t drop one bomb and kill one bad guy and yet they’ve increased energy prices higher than a war in Iran currently has," Senate Minority Leader Robert Ortt, of North Tonawanda, said last week. "At some point that conflict’s going to be over, but you know what ... all of these horrible policies will still be in place and still contribute to higher gas prices right here in New York."

The war is already playing into the budget discussion in some ways, with advocates and lawmakers using it to argue against Hochul’s push to pare back the state’s climate laws.

"Our continued dependence on gas and oil makes New Yorkers vulnerable to price spikes driven by wars and other geopolitical events outside of our control," Senate Finance Committee Chair Liz Krueger (D-Manhattan) said in an emailed statement.

As the war continues, it could play a bigger role in the state's affordability discussion as costs rise, state lawmakers said. But they said a lot is still unknown including how long the conflict will go on. 

"It is a concern, but nobody knows what the next moves here are," Senate Majority Leader Andrea Stewart-Cousins (D-Yonkers) told reporters, adding that she hopes there will be a speedy end to the war. "It’s unfolding, and we’ll continue to be vigilant."