New York’s Historic Big Spending Budget Sets Stage for Future Disaster

New York Governor Kathy Hochul’s self-declared mission to increase transparency continued to lose its sheen with the passage of a state budget through the usual Albany backroom deals, delays, and a highly secretive process. Watchdog Reinvent Albany described the situation as “extraordinarily bad, even by Albany standards.”

The contents of the budget itself provide no relief for New York taxpayers. Hochul has spent time promoting highlights of what her team called a “historic” fiscal plan, which include extravagant spending commitments opposed by the majority of voters in the state.

Take, for example, the $600 million that taxpayers are paying towards the construction of a new stadium for the Buffalo Bills in western New York. Only 24% of voters polled by Siena College in April supported this allocation of spending – 63% opposed it. Hochul’s husband works for the Bills’ concessions company.

The budget fails to include a commitment to repay the $8.1 billion owed by the state to the federal Unemployment Trust Fund, second only to California. This has grave implications for businesses, who currently bear the cost of paying down the debt through unemployment insurance taxes. If interest payments are not made by the 10^th of November a rise in the rate of interest will transfer the cost to payroll taxes, costing an extra $21 per worker. The situation has become so serious that Democratic lawmakers feel forced to express their concerns. 22 state Assembly members signed a letter last week urging Hochul to settle the debt, while businesses saddled with high fuel prices and inflation expenses have already called for action. Hochul would be wise to use federal aid received by the state to pay off outstanding debt before businesses are saddled with an effective tax hike. She, however, shows no signs of intending to do so.

After years of financial tumult through the Covid-19 pandemic, the budget reeks of desperation. Its $220.5 billion commitments, the highest in history, constitute an increase of $8 billion from last year and over $34 billion from 2020. A two-year spending increase of 18% is unprecedented and risks significantly damaging the state’s fiscal sustainability.

It is remarkable that the budget fails to meaningfully relieve the tax burden on New Yorkers, businesses, and manufacturers. Those tax relief measures introduced, such as a capped refundable tax relief program targeting COVID-19-related expenses, a new property tax relief credit, and accelerated relief for the middle-class do not go nearly as far as the original proposals of Republican lawmakers. The GOP has criticized the failure of the budget to meaningfully relieve the middle class and take the pressure off businesses and manufacturers.

The Empire Center, meanwhile, has calculated that under the new budgetary plans the State government is spending $6,987.37 every second this year.

Consecutive rises in taxes and spending may go some way to explaining the exodus of the state’s residents – According to IRS data, a net quarter of a million packed up and moved states in 2020 alone, taking almost $20 billion in annual income with them. Those that remain when the money runs out will be forced to foot the bill. A sixth-month suspension of two gas taxes worth a combined 16 cents found most support among voters, 73% of whom welcomed the freeze. Other tax reliefs, however, are few and far between at a time when the majority of New York voters say the state is going in the wrong direction.

Patrick Orecki of the Citizens Budget Commission decries this new spending splurge as a “missed opportunity” for the Empire state. “Future impacts are even greater than in the past because we raised taxes last year”, he said. “The question is, how much are you imbalancing the financial plan?” Pumping historic levels of funding into the state is the mark of a treasury bloated by federal aid and unconcerned with long-term financial health. This opportunity could have been taken to slash supply-side taxes, repay debts, and rejuvenate individuals’ spending ability at a time when severe inflation looms large. Instead, the state has spent $838,484 since you started reading this blog.