The State Can do Better than the Excess of Caution in the Governor’s New Budget

Governor Hochul submitted the State budget to the New York State Legislature on January 16^th for Fiscal Year 2024-2025, to begin April 1^st, 2024.

A Cautious Initial Budget Proposal

Governor Hochul submitted a cautious budget; cautious out of a belief there isn’t that much more money to spend, and cautious politically because her proposals to expand housing production in last year’s budget collapsed in fights with the Legislature. The budget helps the City with the migrant crisis, as it should. I’ll discuss why there may be room to spend more money below, and then look at whether the Governor and the Legislature can overcome the political impasses of last year and make progress on the intractable housing affordability crisis in both the City and the State.

The Assemblymembers and Senators return to Albany from a Presidents’ Week break on February 26^th to begin the effort to adopt the budget as part of a three-way negotiation between the two Houses of the Legislature and the Governor.

Spending increases in the proposed budget were cautious because the initial economic forecasts for New York in the State budget were not rosy; employment in the State was forecast to rise a paltry one-tenth of one percent, about 10,000 jobs, while national GDP growth was forecast to rise a slow 1.3 %.

Good National Economic News Might Mean a Better NY Fiscal Forecast

Forecasts were prepared before the good national economic news of growth of 3.3% in GDP in the fourth quarter and a whopping 353,000 growth in payroll jobs in the United States in January. These solid national numbers are likely to produce better economic growth in New York. The New York State Comptroller’s analysis of the State budget shows that one major economic forecaster, S & P Global, is already estimating an improved economic outlook in New York:

Improving income, wages, and employment in New York mean higher tax revenue for the State; the improvement shown above by S&P Global is not a bonanza, just better than the State budget office forecast. The Atlanta and St. Louis Federal Reserve branches are also forecasting higher growth, according to the New York City Comptroller.

The traditional Consensus Revenue Forecast done by the Governor and the two Houses of the Legislature in the first week of March serves as the standard for determining available revenue for the coming budget. This year’s Forecast will surely incorporate improved growth forecasts to predict there will be more money to spend than what the Governor’s budget proposed.  It would not surprise me that the Consensus Forecast will show $ 1- $1.5 billion more available to spend.

Good News for NYC in State Budget

The Governor’s budget had good news for New York City. This New York State Assembly analysis ( below) of the funds to be made available to shelter migrants shows the State will provide the City an extra $ 1 billion to help pay the extraordinary new expenses (NY State Assembly Ways and Means Committee, Yellow Book, p.64).

Although Mayor Adams testified in Albany that he still wanted more migrant shelter aid than the Governor’s budget was providing, the preliminary budget he submitted to the City Council on January 16^th, 2024, showed the City was making progress in containing the cost explosion created by the migrant crisis but that new State aid remained essential.

Large Medicaid Increase, Not Much for School Aid

Governor Hochul used a small financial surplus in the current State budget to prepay some of the coming year’s expenses to help balance the budget. To assure the budget would be balanced to compensate for the conservative forecasts for the economy and revenue, the Governor submitted a tepid school aid increase of 2.7%, or $ 921 million, an overall increase of 4%, and a Medicaid increase of 10.9%, as depicted in this State Assembly Yellow Book table:

The large Medicaid increase relates to growth in the costs of the program, especially in home health care, as well as hospital and other service provider rate increases and staff cost-of-living increases adopted in last year’s budget. The Governor actually submitted proposals to trim the Medicaid budget, which would have grown larger but for those efforts to contain costs. Traditional Medicaid and the Obamacare expansion now cover more than one-third of New York’s population and have been critical to New York’s historic low uninsured rate of 5%. But the program is expensive; spending an extra $3 billion year to year for Medicaid (see above) consumes much of the available new resources and crowds out the ability of the State to increase other programs rapidly.

The additional tax revenue that will be forecast by the two legislative Houses and the Governor will be absorbed rapidly to provide a larger increase in school aid,  restore the cuts in the Medicaid program, and to fund discretionary spending by the Legislature.

The Many Facets of the State’s Affordability Crisis

The metropolitan area of New York is expensive and everybody knows it. The high cost-of-living didn’t stop a healthy rise in New York City’s population in the 2010-2020 decade of 7.7%, but the past several years (2020-2022) have seen a City population loss of more than 5%, driven for the first two years in the most part by the COVID pandemic, according to a State Comptroller’s report. Population loss for the State as a whole slowed considerably in 2023, dropping by just over 100,00.

Outmigration from the City is occurring across all demographic, racial, and ethnic categories, according to the Comptroller’ report (above). The impact of the COVID pandemic on the City’s economy, was immense. The City lost 23% of its private sector jobs, 948,000, in the first two months of the pandemic, adding a loss of job opportunities to the housing affordability problem. The pandemic initially, and then rising interest rates, have dramatically reduced new housing starts in the City and the available supply of new housing despite the high percentages of severely rent-burdened low and moderate income households.

Governor Hochul in 2023 sought to tackle the affordability problem with mandates that municipalities across the State set housing growth targets. Legislators outside the City rejected the proposal. Despite the housing affordability problems in the suburbs, there is great difficulty in gaining acceptance for multi-family housing and subsidized housing.

The Governor’s Housing Solutions

This year the Governor proposes $500 million over two years to develop State-owned properties for housing, including facilities like Creedmoor State Psychiatric Center in Queens, a giant former psychiatric hospital currently housing migrant asylum seekers. The Governor also issued an Executive order last year to incentivize “Pro-Housing Communities“ by combining many economic development state programs to allow housing revitalization with up to $650 million. Twenty such grants were just announced including cities like Binghamton, Kingston, New Rochelle, White Plains, villages like Mineola and Croton-on-Hudson, and other smaller communities outside New York City. The State is going to give communities housing money if they want it but will not make them develop housing if they don’t want to.

For New York City last year, the Governor, with Mayor Adams’ support, proposed a number of supply-oriented solutions to the housing crisis in the City, including renewal of the 421-a tax abatement program to incentivize housing production, office-to-residential conversions, legalizing basement apartments, and others. Progressives in the Legislature demanded legislation called a good faith eviction law as the price for approving these proposals, which the Governor refused, and negotiations collapsed. The good faith eviction legislation is a misnomer; it actually is a limitation on rent increases in the currently unregulated sector of New York’s housing market.

This year the Governor’s proposals for increasing the supply of housing are back with a special focus on the renewal of 421-a, silence on good faith eviction, and no proposal to expand housing vouchers. An expansion of housing vouchers by the City Council last year has been the subject of an intense dispute with Mayor Adams. He vetoed their passage of an expansion of what is currently a shelter system-oriented housing voucher to broad new categories of income eligibility and tenant receipts of landlord rent demands and active housing court cases. The veto was overridden by the Council, and the Mayor refused to implement the legislation, with some exceptions. Mayor Adams has said the Council action is well-intentioned but would cost $ billions the City does not have. The Legal Aid Society has sued the Mayor and the Council is expected to join that lawsuit.

I’ve advocated for years that the State create a Section 8-like housing voucher, which Governor Cuomo rejected. The current shelter voucher is similar but limited in scope. The Governor and the Legislature could step in to provide support for a housing voucher with joint contributions by the State and City with some more careful limits on eligibility than what the City Council passed, and cut the cost of the City paying for an expansion by itself. This could result in a grand housing compromise, extending 421-a, setting forth a new stream of subsidized housing, and avoiding the disruptions to the housing market that could come from extending regulation to the currently unregulated sector that might result from the good faith eviction bill.

The Big Question…

The Democratic party dominates State government, with a Democratic Governor and two-thirds Democratic majorities in both Houses of the Legislature. Do the leaders and the members have the political skill to act effectively?