Hello, New Yorkers!
Welcome to the latest edition of this NYC civics-focused newsletter. I’m journalist Felipe De La Hoz, and I am pleased to inform you that we are now officially in budget season! What’s that, you ask? It’s the magical time of the year when legislators hash out how they’re going to spend the hundreds of billions of dollars that make up New York State’s massive annual budget. This week, Gov. Kathy Hochul released her plan, proposing an unprecedentedly large fiscal year 2023 budget of $216 billion, a figure so large that it exceeds the 2020 government budget of the entire nation of Norway, and is about $40 billion more than New York’s pre-pandemic fiscal year 2020 budget.
I know the words “governor’s executive budget proposal” might instantly make some of you feel like taking a nap, but what ultimately emerges from the thousands of pages of figures and plans and legalese in Gov. Hochul’s spending agenda for fiscal year 2023 is the governor’s blueprint for the future of the state. It’s a statement of priorities, some of them long term, and an indication of who has Hochul’s ear.
Before we get any further into it, let’s discuss concepts here, particularly what the budget proposal is and is not. Its release marks the beginning of the budget process, not its end. Now, Hochul and the State Legislature will spend the next several months wrangling and fine-tuning, horse-trading and piling in pork to win votes, until they deliver a finalized budget (ideally by April 1, though it’s certainly not unheard of for lawmakers to deliver it late).
There are two main facets of the budget: the money that is coming in (known collectively as revenues) and the money going out (spending or expenditures). In theory, the revenues should match or exceed the spending for a budget to be balanced. In a pinch, the federal government can always print more money or borrow a practically unlimited amount; the state government cannot, and deficit spending can be very dangerous (look at the situation with Puerto Rico’s bankruptcy for evidence of that fact). One tool that states do have to deal with sudden revenue shortfalls are reserves, which Hochul has decided to prioritize (more on that later).
Overall, the big takeaway on the revenue side is that New York is doing a lot better than expected. A feared collapse of tax revenues did not materialize, the pandemic has brought a spigot of federal funding, and the state is expecting additional revenues from recently legal mobile sports betting and the taxing of legal marijuana. In his presentation, State Budget Director Robert Mujica did acknowledge that there are a number of uncertainties and causes for concern, such as the question of to what extent workplaces will go fully remote, which could have a significant impact on the state’s tax revenue (if, for example, thousands of white-collar employees who used to work out of Midtown Manhattan office buildings are now in other states).
On the spending side, much of any budget is ultimately sort of rote funding of state functions: paying salaries and debt service, maintaining equipment, funding social safety programs, etc. The main point of interest with these expenditures isn’t so much that they’re there, but how the funding levels are changing. Here, it’s clear that Hochul is eager to spend the money that the state finds itself so flush with. One particularly notable proposal on this front is a full funding of something called Foundation Aid, which in short is a state formula and program for funding public schools such that every student in the state receives a so-called “sound basic education.” Activists have for years contended that the state was underfunding it, and Hochul is now proposing to funnel billions into it.
Then there’s new spending, which can take the form of recurring obligations (a harder pill to swallow since it’s a commitment not only to spend money now but spend money potentially forever) or one-time expenditures for some purpose. The big eye-popping number here is a proposed $10 billion to support healthcare worker wages, pay out bonuses, invest in laboratory equipment, and grow the state’s healthcare workforce by a target 20 percent over the next five years. The idea is that this is an injection of funds specifically into mitigating the damage of a next pandemic, or other health crisis. There is also spending on various higher education initiatives, like increasing tuition assistance for part-time students at the state’s public university systems (SUNY and CUNY) and building out various research and jobs programs.
Aside from operational spending, budget documents will include something called capital spending, which by and large means spending on actual public infrastructure. Hochul includes a somewhat amusing yet laudable $1 billion spend to fix potholes around the state, as well as an almost $1 billion increase in state operating funds for the MTA (something that will no doubt help her with downstate voters who have not been as familiar with her as a political figure ahead of her reelection campaign this year). She has also placed a particular emphasis on the construction of new housing, including conversion of empty commercial space into housing, and pledged the construction of a new rail line that will connect Brooklyn and Queens. (The line would connect Bay Ridge to Jackson Heights, which incidentally was voted NYC’s best neighborhood in a Twitter poll last week.)
One thing that Gov. Hochul and budget director Mujica both chose to repeatedly emphasize was that there are no so-called budget gaps through fiscal year 2027, meaning that if revenue projections hold, the state wouldn’t have any budget shortfalls to make up if it sticks to the spending plan. Even with the huge increases, the proposal would set aside 15 percent of state operating funds in reserves over the next several years, as insulation against additional economic shocks.
Again, this isn’t a done deal. This is the starting-off point, and especially now that it’s clear that Hochul has no problem spending the money that’s come in, there will be immense pressure from every legislator and interest group in the state to fund their own project of interest. One significant example: the state’s eviction moratorium expired this past weekend, and many people fear a coming wave of evictions. A court case forced the state to reopen Emergency Rental Assistance Program (ERAP) applications, but the billions in federal dollars that funded that program have run dry. Hochul and other state leaders have asked the federal government to allocate additional funds, but whether that happens is up in the air.
Here’s where the whole idea of the budget gets a little more complicated. Some spending now arguably offsets more spending later. A prime example of this is the pandemic itself: if the state had better prepared for it, such as by having greater stores of PPE, more healthcare professionals and health research, and more hospital beds, some of the devastation could have been avoided. Yet it’s impossible to protect the future, and it is easy to get sticker shock with the price of something now, even if it might be better in the long run. A wave of evictions would be economically calamitous for the state, but will state lawmakers be willing to invest billions into rent assistance? We’ll have to see.
