Dan Clark: Circling back to the budget now with a closer look at the numbers. Patrick Orecki is an expert on the state budget from the Citizens Budget Commission.
Patrick Orecki: Thank you for having me here.
DC: So, we see this increase in financials in all funds and when we say all funds we're talking about state funding, federal funding, all the money that's in the pot, increasing from $220 billion in last year's budget to $229 billion in this year's budget. $9 billion is a lot of money, but out of $229 billion kind of a small fraction of that pie.
Is that an average increase, the $9 billion that we've seen?
PO: Yeah, I think that's a little bit bigger than average. Usually, the all-funds growth will be 4 or 5% and that's pretty much right in that exact range. There's a lot going on in the financial plan with puts and takes with a lot of federal money that's been around since COVID, response money, and new spending coming in. So, there are a lot of puts and takes.
DC: That's interesting because I remember in last year's state budget, the big thing was we have all this federal money, it's going to run out, we have got to use it, but we're still increasing spending this year. Do we still have a lot of federal money to use, or that could be coming in in the future?
PO: Yeah, there's probably not more coming in the future, but there is still money, especially from the American Rescue Plan, the state and local fiscal relief. The state got about $13 billion of that to use over a four-year period. So, we're actually still using that. There's still a little bit, in fact, in fiscal year 2025 for this as well.
DC: I remember when we were talking last year and in last year's budget too, that when they passed last year's budget, the Governor made a big deal about it being a neutral budget, it wouldn't have a deficit in 4 or 5 years out, I think. Is that the case still in this year's budget? I don't know if they even look that far, I guess?
PO: Yeah, it is not the case and the short answer is no.
So last year when the budget passed, it was kind of incredible that we had five years worth of budge balance over the life of the state's financial plan. I don't think that ever happened since financial plana started, so, it's kind of incredible. That was really short-lived.
It was over the summer that the state said, you know what, the tax receipts don't look as good as we originally thought over the coming years so gaps opened up in July last year.
DC: So that’s a situation that was created since the last budget?
DC: That's tax receipts in like they're thinking less income taxes. So, what's the shortage of revenue that they're expecting, I guess?
PO: The biggest piece of the pie is personal income taxes for New York state. That is the single largest source of state-generated revenue in the budget of the it can be very, very volatile. Especially because New York state has a progressive personal income tax code and movements at the top income brackets and capital gains can cause pretty big shifts in the overall kind of receipts forecast.
DC: Assume that's probably the hesitancy in the Hochul administration of raising taxes on high income earners this year. I know that is part of it and you probably have the number, I think it's like the top 1% of earners generates 50% of revenue income tax. Am I making these numbers?
PO: No, that's basically it. Yes, essentially the top 1% of personal income tax filers funds about 1 in $5 that the state spends from state operating funds overall. So, it's a huge amount of money that comes from a relatively small number of taxpayers, which means that you can get, again big swings in those numbers year to year.
DC: Something, and I know you are still looking through the budget, so it's okay if you don't know this, but I think it's something that a lot of people will be wondering is, are there any new costs for me in this budget? You know, we're not raising income taxes on anybody this budget, but there are sometimes hidden fees in places of the budget.
Do we know if we should expect any new costs for New Yorkers with this?
PO: Yeah, I think there are two sort of big things that we would call attention to. One is an increase in the payroll mobility tax specifically within New York City. So that's a tax that already exists. The state is just increasing rates in New York City on employers based on their payrolls to generate new recurring revenue for the MTA specifically.
The other thing is not a tax policy action by the state, but sort of a cost shift from the state onto local governments. So local governments pitch in several billion dollars for the Medicaid program every year. It’s a pretty complicated mechanism, but the state is shifting about $700 million in costs from the state onto counties and New York City.
DC: Do we know why? In terms of the shift, does the state have a reason to be doing this, or is it kind of just, we want the money?
PO: I think that's really the primary reason is that it shows up on the state's books as about $700 million in savings. State doesn't have a big savings plan in this budget or most budgets so this is a big area where they're decreasing their own spending and it opens up opportunities to spend elsewhere. But it does mean that cost has to be picked up at the local level.
DC: Let's talk about the spending, the expense side of this budget. You know when we talk about the budget, I think looking at it in a big picture kind of way is really important because some people may think $229 billion. It's going toward a lot of things, as I mentioned at the start of the show, it's really in two big buckets, I think education and health care. Is that still the case in this budget? I would assume it is, but it is schools and Medicaid primarily.
PO: Yes, with Medicaid being the single largest thing. So that is over the next few years getting upwards of $100 billion total between the state and federal funds. So that's the single biggest program and school aid is number two right behind it. Between those two things that's more than half the budget alone.
DC: The Medicaid growth, is that kind of average this year compared to previous years? That's obviously a big part of the budget. I think when it grows people pay a lot of attention to it becuase if the legislature, the Governor, Department of Health is doing something that would increase the cost, I think that's something to pay attention to.
PO: Yeah, there is significant growth there for a couple of reasons. First of all is policy actions taken, the state increasing reimbursement rates especially for hospitals. We also have significant costs in the long-term care space. That's always been growing pretty quickly.
One thing that's happening, though in Medicaid programs specifically is that there is over a million people that enrolled in Medicaid during COVID because of federal rule changes that allowed people to stay in the program longer. Over the next year or so, those people are going to start to shift out because those COVID provisions ended. Again, there are kinds of puts and takes, but there is still significant growth in Medicaid.
DC: So, as those people come off, the costs I don't think significantly but would go down a little bit for the state?
PO: Yeah, it’s fairly significant. We're talking about a million people moving out of the program and the average costs of these individuals is probably $10,000 to $12,000 a year. Everyone who moves out of the program, the state is reducing Medicaid spending by that much. They're moving into other programs, some of them into public programs, some of them into private coverage.
DC: Just beyond those health care and education buckets, are there any other spending actions here that seem out of the norm, or is there something that the public might be interested in knowing about?
This is ten pieces of legislation, there's a lot to go through.
PO: Yeah, the biggest fiscal question mark outside of those big buckets is what the state would do about the MTA. The MTA is in a really difficult fiscal position right now, and it has been for years, but really exacerbated by COVID driving ridership down significantly. So, we knew there was going to be some state support for the MTA. It turns out the package that they came to is about $1 billion dollars in recurring revenue from the payroll mobility tax that I mentioned earlier and a few other sources of funding, too, to try to get the MTA back to long-term balance.
DC: It's a huge issue especially for people in New York City and the metro area, but we're out of time. Patrick Orecki from the Citizens Budget Commission, thank you so much.
Watch the Interview
What New Yorkers Can Expect From the $229 Billion State Budget
Explore New York's $229 billion state budget with expert Patrick Orecki. Find out what's driving the $9 billion increase, hidden fees, and the MTA's $1 billion rescue plan. Learn how this budget impacts education, healthcare, and local governments.