New York's 2024 Budget Negotiations Unpacked

Shantel Destra: Welcome to this week's edition of New York. Now. I'm Shantel Destra. It's about a week until the state budget deadline and negotiations are underway. Legislative leaders officially kicked things off by convening the first general Conference committee meeting, also known to Albany politicos as the mothership. The meeting came after the chambers released their respective one House budget proposals, which were about $13 billion more than what the governor proposed. Let's unpack some of the highlights.

The two chambers, for the most part, were aligned on addressing housing with the inclusion of some form of tenant protections. The chambers also included increased taxes on wealthy New Yorkers. While the governor has said that this is a nonstarter for negotiations and the legislature also veer away from the controversial education plan Hochul proposed. On the other side of the aisle, Republicans slammed Democrats for what they describe as a budget that does not address affordability. But one thing is clear there is a lot for the leaders to try to come to an agreement on before April 1st.

In the meantime, David Lombardo of the Capitol pressroom sat down with Senate Finance Chair Liz Krueger to unpack the chamber's position on some of the most watched budget items. Here's that conversation.

David Lombardo: Well, welcome to the show, Senator. I really appreciate you taking the time. 

Senator Liz Krueger: Certainly glad you're here with me. 

DL: Though, in the one House budget's proposed by the Democrats in the Senate and Assembly, the spending that they envision is above and beyond what the governor called for her executive budget in order to pay for that, the Democrats in the legislature have advanced to higher taxes on wealthy New Yorkers in the Senate particular. There is an increased income tax on New Yorkers making more than $5 million and above, as well as an increase on corporations making more than $85 million annually. Why is that the right balance to strike for the Senate Dems, in particular the increased spending and the increased taxes?

LK: Well, to start, nobody ever wants to increase taxes, but you need to provide the services and the programs that the people of New York need. And we believe that we made a very modest proposed increases in a number of different sources of revenue. You mentioned two. One is an increase in taxes for people making over $5 million a year and then a bump if you make more than 25 million. Well, just to start, this is your taxable income, which anyone who's has 5 million or 25 million of taxable income has dramatically more actual income because there are so many ways to shelter income and to not take income as quote unquote, cash. When you have that level of wealth.

So this the changes we made would have absolutely zero impact on the lifestyle by the spending ability of anyone in these categories. These people have, you know, they are the 1% of the 1% and they actually don't spend that kind of money. And they are earning it at a much faster and higher level than actually they will probably ever spend. So we feel very comfortable saying we need some additional funds for important programs in New York State. We're asking you to. Yes, make the sacrifice of paying a little bit more in your taxes. But we're very confident we'll have no impact on their lives.

Now, on the corporate tax, it's also only if the corporation nets more than $5 million a year. So these are quite large corporations and the majority of them aren't even actually here in New York. They're national and international companies that sell to us in New York, and they will continue to sell to us in New York. But it's not even a storyline of what would they pick up and leave if we have a higher tax rate on them. It has nothing to do with small or medium or community or local based businesses.

So again, we believe that that is an appropriate decision. And in fact, our corporate taxes on high earning large corporations is lower than quite a few states. 

DL: And those taxes are going to generate potentially billions of dollars in additional revenue. So can you talk about what the Senate Democrats in particular envisioned spending those additional dollars on?

LK: Sure. So we think those two tax combined tax proposals will bring us in about $2.2 billion a year combined. And we have a full and robust package of changes to the governor's budget. I'd say one of the biggest discussions has been around not allowing cuts in public school funding. The governor proposed fairly dramatic cuts in public school funding that would impact 50% of the school districts in the state. Now, school districts function under knowing what their budgets are year after year, being able to hire or keep the staff they have and the concept that in one year you would cut 50% of the school districts would literally leave them in a crisis of this moment because they've already made their decisions in their plans for what next school year starting September one looks like.

So for 50% of the districts to face reductions in the amount of money they're getting in, state aid would truly be damaging in an impact. You know, half of the state of New York. So we put that money back. We last year, we, in agreement with the governor, adjusted the funding to finally meet our legal obligations to fully fund the formula-based aid to every school district in the state. We spent decades fighting in court around this issue. We made commitments that then got pulled back because of economic problems and then the pandemic. Last year, we finally made the commitment to deliver full funding aid as committed to in previous years to every one of our school districts.

And it's a year later, and the governor proposed reducing that commitment. We just thought that was wrong and would harm school and their families. So we're putting that money back. That's one of the biggest changes we're making in the governor's budget. We also, in coordination with the assembly, actually found an opportunity to draw down $4 billion more from federal Medicaid funds. So it's not new taxes on the people of New York State. It's new federal money coming to us. It has to be spent on health care related activities for people eligible for Medicaid. But interestingly, that was another place the governor was calling for significant cuts, even though the health care providers, hospitals, community based health care, nursing homes, doctors, nurses were all explicitly talking to us about the impacts of having such low Medicaid reimbursement rates. Our difficulty is finding people to work in our hospitals and nursing homes and home care services.

So we know we have a growing population that's getting older. We know we have higher health care costs. I wish we didn't, but we know for a fact we do. And this 4 billion more that we'll be able to draw down from the federal government is going to go a long way to addressing those concerns. But there's no tax increase on the people of New York. I think that is a complete win-win, and I would hope the governor would go, what a great idea they came up with. 

DL: With regards to the creative way of tapping into additional Medicaid dollars. Any concerns that after that money runs out, you've now created this new baseline of health care spending that you won't be able to cover with federal dollars, and then the state is going to have to dig into its own pockets to find that money?

LK: So we believe that this waiver we will apply for and get because they just gave the same waiver to California, is a three-year waiver. We would know long in advance if there was the potential for it to continue or not. We would know that we might have to deal with a hole or change our funding.

We have to do that every year. We have zero-based budgeting every year in this state and every year I've been around now for 22 years. Every year, at some point before budget starts to get negotiated, somebody discovers we're in better shape or worse shape than we imagined. But it's always a surprise. Every year it's always a surprise whether we're doing better or worse. And why. And then we deal with it. And we've had years where we had to make budget cuts, and they're very painful. I've had years where we've had to cut as much as $10 billion out of our annual budget. No one wants to do it. But the fact is, the model of government that we have when we do annual budgets and we have to evaluate every year whether we have the funds or not.

Now, you could ask the question, do we just have too much money being spent on health care? It is the fastest growing piece of the budget and there are lots of questions about it. And we are we need to confront that because we also need to confront the fact that demographically we're becoming an older and older population and older people have new costs and more costs. So, yeah, there's challenges there always challenges. But I think that's what we got elected to do, face the challenges and come up with the best answers we can. 

DL: Going back to education aid, is it safe to assume that even if the Democratic majorities in the legislature can't negotiate some sort of increases in revenue with the governor, that there will be additional dollars spent on education above and beyond what the governor proposed, in part because of what we saw from the joint revenue forecast, which identified another $1.3 billion above and beyond what the governor projected our revenue would be for the coming year and other positive financial indicators we've seen since then, including a really good sales tax report for the month of February. So is it safe to assume that there will be additional dollars for education no matter what happens on the revenue side?

LK: I don't feel comfortable saying anything. Safe to assume...

DL: Even after 22 years?

LK: Even after 22 years, this is a process that goes through negotiation between the two houses and the governor. If you ask me the question, what issues seem to often stay at the top of our list of priorities? Yeah, public education for our children seems to always be at the top of our list. There's not one part of New York State this doesn't impact. There's not one person in New York State, whether they have children in the school system or not, who's not impacted. I talk all the time about what are the things the state needs to deliver to make sure that we are a healthy, growing state. And the punch line is infrastructure, clean air, clean water, and an educated workforce. That's what brings businesses here. That's what keeps them here. So even people out there who say, my kids are raised, I don't have anyone in the school system, I don't have to care anymore because whatever business you're in, you won't have educated people to work for you unless we have a good school system. Whatever business you're in, you are going to be able to sell to any customers if they don't have the education they need to get jobs and provide for their families. So education is just a universal, fundamental assignment of government. So, yes, I don't believe there will ever be a time where we won't prioritize the importance of a good quality education for everyone.

DL:  Well, finally, for the second year in a row, there seems to be an effort to strike some sort of grand bargain on both housing creation, as well as increased tenant protections for New Yorkers. Over my right shoulder, I noticed you have a copy of the 2019 really ambitious housing law that was spearheaded by the two houses in the Capitol here, but the Senate Dems and the Assembly Dems. As part of the conversation that's going on right now, landlords and property owners are looking to scale back some of those protections in order to strike this grand bargain. Are you comfortable with rolling back any of the tenant protections or rent stabilization issues in particular in order to achieve some deal on new housing and other tenant protections, like something about the principles of good cause eviction?

LK: So, no, I don't I don't believe that my house or the other house has any intention to scale back the law we passed in 2019. It took us, in some cases 40 years to make those changes. And we watched the damage made to affordable housing in New York State over those 40 years, particularly in New York City, where the Rent stabilization laws mostly apply, although they also apply in Nassau County, in Westchester, and I believe Syracuse. I think. So. Now, we're very, very happy with the law changes we made. Yes, we think there need to be more tenant protections. That law from 2019 has nothing to do with the red course of market-rate housing. And so the tenant protection being called for desperately is to change the rules of the road on ability to evict people in market-rate housing. You'll still be able to evict if they don't pay their rent, you'll still be able to evict if they are bad tenants and are causing problems for your property and their neighbors.

But otherwise we're saying let's have a reasonable formula for how much you can raise their rent on an annual basis so that we aren't seeing continued growth of evictions of people who did nothing wrong. The rents are just growing faster than they can possibly afford them. That's bad for everyone. Now, why is the rents going up so much? So much more than, you know, even the inflation levels or COLA levels. So partly it's greed by some. We can do it. We can make more. So let's make more. And it's also fundamentally, we have more people looking for housing than we have housing in certain parts of the state, not just New York City. We're hearing about these issues all over the state of New York. Now, the solution to prices being too high in housing is to build more housing.

My legislative colleagues completely understand and agree we need to build more housing, not just in New York City, but throughout the state of New York. We have put together a robust package in our one House bill to try to support increasing the type of housing and the number of units being built throughout the state of New York. We we believe strongly that we need to help build ourself out of this problem. The challenge is how much government money is available to subsidize that effort and where is it going to be used. So I believe that real estate in some cases is asking for too much in exchange for building lots of affordable housing, and they're asking for money to build non affordable housing. And I don't agree with that. I'm totally prepared to support government and tax investment through programs like 485 ABCDE or whatever we're calling it this week and other models for supporting the affordable housing to be built.

But we need legitimate partners in this deal that are actually giving us affordable units. If you just subsidize real estate to build non-affordable housing, as we did under the old 421A program, they build lots of unaffordable housing in poor communities and push out the people who been living there and you end up with the gentrification disasters. We have seen in New York City for the last 20 years. We need to get it right. We really believe we need to get it right. We think we've put together a package that gets us closer there. Obviously, this is going to continue to be negotiated. We're not walking away from the table. We did it last year. We're not walking away from the table this year. We need to get something done. 

DL: Well, we've been speaking with Senate Finance Committee Chair Liz Krueger. She is a manhattan Democrat. Senator, thank you so much for making the time.

LK: Thank you.