Hochul says new state budget won't include tax increases
Gov. Kathy Hochul said Thursday that she’s not considering raising taxes in her new state budget proposal, due out next month, even though New York’s fiscal outlook continues to deteriorate.
Hochul said that just one year ago, the state’s revenues were at near-record rates, and federal pandemic-related funding was pouring in from Washington.
“Literally a year ago, when we were looking at our landscape, it was very bright,” Hochul said. “It was a bright day.”
Now, the U.S. is experiencing the highest rate of inflation in 40 years, concern over high fuel prices, and a drop in the stock market.
“This year, it’s a totally different story,” Hochul said.
She said controlling state spending will be a top priority in 2023.
The governor said she’s already working on her budget proposal, which is due at the end of January. And she said raising taxes will not be part of the equation.
“I don’t believe that raising taxes, at a time when we just cut taxes, makes sense,” Hochul said.
Hochul last year initiated a property tax rebate and implemented the final phase of a middle-class tax cut. Two years ago, before she was governor, the state raised the income tax rate on wealthy New Yorkers.
The governor said she is also not reneging on a commitment to fully fund schools, under what’s known as the state’s foundation aid formula.
The funding was the subject of a decades-long court battle, which plaintiffs won in 2006. But a plan to fulfill the order and fully fund the schools was scrapped during the Great Recession just over a decade ago. An agreement to fully restore the money did not come until this year.
Under the plan, an additional $21.3 billion will go to schools in the next state budget, and increase to $23.2 billion a year by 2024, when it is fully phased in.
Hochul said there are also built-in increases in health care funding, and in the Medicaid program, which is partially funded by the state. And she said those increases, which she called necessary for helping move out of the pandemic, also won’t be altered.
“Those are already committed obligations that we are going to meet,” the governor said. “But then, there’s all the agencies, and how we manage those.”
Robert Mujica, Hochul’s budget director, has asked the agencies to “hold the line” on spending in their budget requests.
Mujica said he and the governor took steps in the current budget in case an economic downturn occurred. They held back billions of dollars from pandemic-related federal funding in reserves and are growing the rainy-day fund from 4% to 15% of the state’s total budget.
And he said some big-ticket one-time spending items, including bonus payments to health care workers, were financed with one-time sources of revenue from the federal relief packages, so they won’t be a burden on future spending plans.
But Mujica said the Federal Reserve’s recent interest rate increases, aimed at slowing economic growth to tame inflation, will likely alter the state’s predictions of steady economic growth over the next few years.
He said that’s a concern for Wall Street and the financial industry, which is responsible for a significant percentage of the state’s total tax collections.
“The outlook is extraordinarily challenging,” Mujica said.
Mujica said for now, though, revenue collections remain strong and unemployment is low, close to pre-pandemic levels.
Mujica is leaving his job at the end of the year to run the financial oversight board in Puerto Rico. His successor has not yet been named.