EDUCATION AID AND TAX CUTS

The New York State budget approved this April provided the lowest funding increase for public schools in the last five years, about 4.1%          State Public School Aid Increases:

FY ‘14 FY ‘15 FY ‘16 FY ‘17 FY ‘18
State 4.9 5.4 6.0 6.1 4.1
NYC 4.6 5.25 5.79 5.73 3.95

The budget was prudent given the risks posed by the Trump administration, but revenue losses from recently enacted tax cuts are actually squeezing the State’s revenue base. Although a higher rate for multimillionaires (taxpayers making more than $2.1 million/yr), was renewed, that money  was essential just to preserve the funding necessary to meet basic public needs. There were certainly positives in the State budget, like the new middle-class college tuition benefit, but this improvement is not costly and is being phased in. Many big State projects are really in the Capital budget and are long-term in nature. They are being funded by the $9 ½ billion the State received in litigation with the financial industry related to the recession, or are being paid for with borrowed funds. These programs are funding priorities like housing, economic development, and infrastructure. The operating budget has more limitations.

Tax cuts enacted in 2014,2015, and 2016 will drain the State of $2 ½ billion a year by 2018 and more in later years. The Republican Senate pushed a new “ middle-class tax cut “ in the State budget negotiations in 2016, and it was agreed to by Cuomo and the Assembly. The revenue loss is small this year but grows to $1.07 billion in 2018 and $1.5 billion in 2019. The top rates are cut from 6.85 to 6% or 5.5% and spread out through 2025, by which time the revenue reductions are estimated at $4.2 billion a year. “ Middle-class “ includes married  taxpayers filing jointly at $300,000 a year and down.

Revenue losses from other recent tax cuts are also still growing. In 2014 New York reduced its corporate income tax, the estate tax, and abolished the State corporate income tax for manufacturers. Those reductions have been ongoing, and grow by $180 million this year and another $180 million next year (FY-18-19). The tax breaks for manufacturers cost $300 million a year but took effect  by 2015. Another homeowner property tax break was enacted in 2015, a new “STAR rebate” valued at $450 million a year. The money goes out as checks only to homeowners outside New York City. In 2018  incremental revenue losses from the tax cuts will drain $1.25 billion from the State’s treasury compared just to 2017. That is the main reason spending is moderating.

The  income tax cut in 2016 was actually “ middle-class” income tax cut number two of the Cuomo administration.  The first one took place in December 2011, when Cuomo called the legislature back to a special session concerned about a growing deficit while revenue from the recession-related income tax increases on the wealthy were expiring. Cuomo cut a deal with the Republicans to enact a partial cut in the unpopular MTA payroll tax and an income tax cut for middle-class taxpayers, in exchange for keeping the recession-based high rate for the super-wealthy(taxpayers over $2 million a year).  While a high rate for the super-wealthy preserved some revenue, the higher rates enacted during the recession started at $300,000 for married taxpayers filing jointly. As a result, taxpayers between $300,000 and $2 million had their income tax rates drop in 2012 back to the pre-recession rates. Taxpayers below those incomes had their rates drop further. Revenue losses from the drop back to the old rates for these “ mid-level but not super- wealthy “ taxpayers were $2 billion a year, and the new “middle-class “ rate drop reduced revenue by another $690 million.

Tax cuts in New York have a rationale : improving the business environment, or just providing relief to burdened ordinary people. The problem is striking a balance between revenue losses, meeting basic public needs and addressing income inequality. To its credit, the State Assembly has recognized the need to reclaim some revenue to assure adequate resources for the future. It has passed an increase in the rates for taxpayers who make over $1 million a year,  but the Republican-controlled Senate won’t touch that proposal . In fact, the Democrats were lucky to get the extension on the $2.1 million plus group this year.

Sources include reports from the NY State Division of the Budget, the State Comptroller, the NY State Assembly and the NY State Senate. For further info you may contact me at jimbrennanbrooklyn@gmail.com

Housing and Hardball Politics

The adopted State budget includes a $2.5 billion appropriation for new affordable housing, with $1 billion for supportive housing. The new money should help New York City substantially with its housing crisis. The budget also resurrected the real estate developer property tax break known as 421-A, renamed ” Affordable NY “. How the two came together is a lesson in hardball New York politics.

In the spring of 2015 Mayor DeBlasio had negotiated a deal with the Real Estate Board of New York on a new 421-A program, which was expiring along with the rent regulation laws in June 2015. The tax break had long been criticized as overly generous to the real estate industry while producing little affordable housing, but it had powerful backers in Albany. As the construction unions sought a union-wage mandate to be added to the bill, Governor Cuomo attacked the new legislation, derailing it. The legislative session ended in June 2015 with the tax break unresolved. A law was passed extending 421-A until January 2016, allowing the Real Estate Board and the unions to come to terms. If they were unsuccessful, 421-A would expire. In fact, the parties could not agree and the law expired.

That same January Governor Cuomo put $2 billion for affordable housiing in his new budget for April 1,2016. But it didn’t quite get approved. Instead, the funds became entangled in a post-budget Memorandum of Understanding(MOU) that would have to be ok’d by Cuomo, Heastie, and Flanagan before being released. REBNY and the unions, still bent on winning the profitable tax break, continued their 421-A talks as the year dragged on, with the MOU on the sidelines. In November 2016 they finalized a deal but it still would require legislative approval. At this point there was no way the State Senate Republicans would let the money get released until REBNY and the unions got what they wanted.

Cuomo then put the 421-A deal and the money(with $500 million added) into the 2017 proposed budget. By then evidence that the 421-A tax break was unnecessary to spur affordable housing production was flowing in. A City Housing Department report for 2016 (http://www1.nyc.gov/site/housing/action/housing.page?) showed a record pace of affordable housing production with no 421-A. And the Association of Neighborhood Housing Developers reported there was no drop-off in housing starts in 2016 in NYC compared to the average of 2012-14( 2015 was an anomaly because developers knew the tax break might expire)(https://anhd.org/policy-reports/).

But hardball politics prevailed. Both the tax break and the money were approved together. The Governor’s budget press release highlighted both and claimed the 421-A break would produce 2500 affordable units a year( failing to mention many of the units were for people of middle-income, that overall most units were market rate anyway and that the tax breaks would extend for decades). The Assembly website highlighted only the new funding.

 

 

 

 

Statewide Electric Rate Hike Goes into Effect April 1

Last August the New York State Public Service Commission ordered the State’s utilities to buy electricity at higher rates from four nuclear power plants in the Lake Ontario region of upstate New York whose owners had threatened to close them. The order takes effect on April 1 and requires a $482 million annual rate increase, about 2% of the State’s electric bills. The order imposes a 10% increase every two years(subject to revision) through 2027 with the purchase requirement ending in 2029.  The plants are big employers and many jobs would be lost if the plants closed. To replace the lost output would require nearby fossil-fuel power plants to increase their output, contributing to global warming.

Exelon and Entergy, the plant owners, blamed low natural gas prices for causing them to lose money on the price of their power. The Public Service Commission did a case review of the costs of the plants( and their profitability) but kept the review confidential by requiring participants in the case to sign agreements not to disclose what they learned. The Commission also did an analysis based on the avoided cost of burning coal to come up with a price the owners should be paid  to avoid the shutdown.

The Commission then required every utility to buy its proportionate share of the State’s total electric load, no matter how much of the output of the four nukes actually got transmitted and sold into each region’s service territory. That meant that the downstate electric customers in New York City and its suburbs would have to pay about 60% of the price hike. The Commission published no information on how much of the nuke output was used in different parts of the state, justifying the allocation by saying there was a statewide environmental benefit to avoiding burning more fossil fuels. That was true but the obvious real economic beneficiaries were the local workers who kept their jobs, the local residents who would lose the plant’s property taxes, and the plant owners who kept their profits.

Con Ed’s customers will pay an extra $190 million a year for the nuke bailout,on top of a $360 million rate increase the Commission just gave the company in January. The ordinary rate hike is stiff but at least it correlates with investments Con Ed is making in its service territory. The Public Service Commission’s members are appointed by Governor Cuomo with the consent of the State Senate. The State Assembly conducted a hearing on the nuclear bailout a few weeks ago but the Public Service Commission failed to appear to testify and then its Chairperson left to take a job in Australia.

The Triumph of the Medicaid program

One big health care story in the wake of the failure to repeal Obamacare is the triumph of the Medicaid program, both in New York and the nation.  Quinnipiac released a poll a few days before the Republican setback showing broad public opposition to the repeal, and one question asked the American public if it supported or opposed cutting Federal funding for the Medicaid program: the answer -No-opposed- by a margin of 74-22. The breakouts by group were extraordinary- Whites opposed cutting 72-23, nonwhites,82-17. Republicans opposed cutting by 54-39. Non-college whites opposed cutting the program 66-29. The poll included over 1000 registered voters.

When Governor Cuomo announced in January that Obamacare repeal would result in the loss of health coverage for 2.7 million New Yorkers, there were already 6.3 million New Yorkers on the Medicaid and CHIP programs, according to HealthInsurance.org. The Kaiser Foundation reported that 2.5 million New Yorkers had acquired coverage from the Medicaid expansion, as well as the private insurance component, between 2013 and 2015. Now 30% of New York’s population is enrolled in the Medicaid and CHIP program, and 94% of New Yorkers have health insurance!!

The national figures are also extraordinary. Medicaid.gov reported that 74 million Americans were enrolled in Medicaid or CHIP in December 2016, nearly 23% of the population. That figure compares to 58 million enrolled in the July-September 2013 period, just before Obamacare began in January 2014, a gain of 16 million. These new enrollments included many people who had actually been eligible for Medicaid before the Affordable Care Act, but were pulled in, at least in part, by the broad national outreach effort to get more people to enroll. These figures don’t include the 11 million people enrolled in private insurance through the HealthCare Exchanges, most of whom are also subsidized. New York integrated the Medicaid program with its NYStateofHealth Exchange so that a person could enroll in the public program or a private program through the same exchange. But 90% of the coverage beneficiaries in New York enrolled in Medicaid, not the private insurance.

In 2007, the year before the Great Recession, 47 million Americans were enrolled in Medicaid and CHIP. Today it is 74 million. Tens of millions of Americans just above the poverty line got the help they needed and now the Republicans have figured out it is hard to cut a program that has broad national support.

The top priority in the State budget this year is the renewal of the multimillionaires’ tax.

Failure to renew the tax, which expires Dec.31 of this year, will result in a $3.3 billion revenue loss to the State in 2018. That revenue loss concern is compounded by another tax cut enacted last year, the second ” middle class income tax cut ” enacted during the Cuomo years. Advanced by the Republican Senate during the 2016 budget, Cuomo and the Assembly agreed to the proposal with a long phase-in until 2024. While its impact is negligible now, next year, in 2018, the ” middle-class income tax cut ” results in a $1.1 billion revenue loss to the State. The Republican Senate’s resistance to renewing the multimillionaire’s tax this year will have significant consequences: if you added the two reductions together for next year, the revenue losses grow to $4.4 billion and start forcing reductions in spending on school aid, health care, and transportation.  Revenue losses from the middle-class tax cut grow to $4 billion a year by 2024.