N.Y. State Budget Doubles as Power Test for Governor Hochul
(Bloomberg) -- New York’s budget will provide the strongest test yet of how much power Governor Kathy Hochul wields over a legislature vying to reassert dominance after a decade-long battle with predecessor Andrew Cuomo.
Hochul’s circumstances look ideal ahead of the April 1 budget deadline. For the first time in the state’s history, the governor’s $216.3 billion executive budget doesn’t project deficits.
Flush with cash from soaring tax revenue and a $26 billion infusion of federal aid, New York’s finances are stronger today than at any other point. A Monday Siena poll showed Hochul with a 40-point lead over her competitors as she campaigns for the June Democratic primary.
But Hochul must resist the Democratic-controlled legislature’s itch to spend the windfall -- or risk the ire of business leaders who have thrown their support behind her but are worried higher spending will eventually lead to higher taxes in a state that already has among the highest tax rates in the U.S.
“The business community will be watching to see whether this budget creates ongoing expenditure obligations that will require state tax increases when federal relief funds are exhausted,” said Kathryn Wylde, president of the Partnership for New York City, a business group composed of the city’s largest companies, including JPMorgan Chase & Co. and Goldman Sachs Group Inc.
She said business leaders foresee a steady out migration of New York’s highest earners, who carry the biggest income-tax burden. Commitments that “depend on sustained revenues at the current level will almost certainly result in a fiscal shortfall down the road,” Wylde said.
‘Crime and Inflation’
Ahead of the 2022 elections, Democrats across all levels of government are especially cautious about appearing soft on crime and unsympathetic to rising inflation.
It’s no different for Hochul, who has to simultaneously appeal to her more conservative upstate New York base and the New York City residents she’s been trying to woo since taking over for Cuomo in August, when he resigned over sexual harassment allegations.
“The Democratic party is always at its weakest point when crime and inflation rises simultaneously,” said political consultant Bruce Gyory.
For Hochul, that means tangling with politically charged issues like New York’s 2019 bail reforms amid a spike in violent crime, gas taxes, and inflation relief.
Although the governor’s proposed budget is already the largest in the state’s history -- 40% bigger than the $153.1 billion plan enacted in 2017 -- lawmakers in both houses are pressing for billions more in spending this year, on measures such as increasing state subsidies for childcare, rental assistance and aid to undocumented immigrants.
Peter Warren, director of research at the non-partisan Empire Center, said New York is missing an opportunity to use the state’s surplus to cut taxes. Nearly a dozen states including Ohio and Arizona cut taxes in 2021, according to the Tax Foundation. The governors of Illinois, California and Massachusetts are pitching further forms of relief to taxpayers crushed by the inflation surge.
Critics say Hochul’s plans to accelerate middle-class tax reductions set to fully take effect in 2025 are just cosmetic.
“We’re in an unprecedented situation, and that is not being used to reduce tax rates as many other states are doing,” Warren said.
Political pressure on Hochul accelerated over the weekend after reports revealed that her running mate, Lieutenant Governor Brian Benjamin, faces a federal probe into his fundraising for his unsuccessful 2021 bid for New York City Comptroller.
Benjamin’s comptroller campaign received subpoenas in connection with the investigation, according to a source familiar with the inquiry who was unauthorized to speak publicly on the matter.
Adding to Hochul’s political challenges is a promise she made early on in her governorship to embrace a different tone and negotiating style from Cuomo, who was notorious for bullying and intimidating legislators into adopting his proposals.
Hochul, like governors before her, wields more authority than lawmakers to enact policy in the state budget process. Under New York law, legislators can only adjust spending on existing budget items, or remove policy items from bills proposed by the executive branch, but they lack the authority to add in new policies or spending items.
But, in recent weeks, legislative leaders have shown signs of their willingness to test the boundaries of their relationship with Hochul by suggesting they’ll use what powers they do have to thwart several of the governor’s high-profile policy agenda items. That includes granting New York City Mayor Eric Adams a four-year extension of mayoral control of city schools and changing laws to make permanent the availability of to-go drinks.
The biggest pushback among legislators so far has come in the area of criminal justice reform. Two weeks before the April 1 budget deadline, a memo from Hochul’s office outlining her proposed changes to the state’s bail reform and discovery laws leaked to the public. It’s unclear who released the memo, but its disclosure marked a breach of the typical closed-door negotiating style that characterizes how budgets are finalized in the state capitol.
Progressives, including the leadership of both houses of the legislature, are opposed to any changes to bail reform. But the idea of tweaking the laws is popular among Democrats statewide: Monday’s Siena poll found 46% of Democratic voters said the 2019 bail reform law has resulted in an increase in crime. Nearly 80% said they thought the bail law should be amended.
If Hochul and the Democratic-controlled legislature can’t come to an agreement, it could result in a late budget that would create an appearance of government dysfunction just months ahead of the elections.
When asked how Hochul would find common ground with the legislature last week, she said: “I didn’t sign up for this job because I thought it was easy.”
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