• The Star Staff

New York agrees on $212 billion budget to jump-start recovery

By Luis Ferré-Sadurní and Jesse McKinley

New York state leaders announced that they had reached an agreement Tuesday on a $212 billion state budget that includes tax increases on the wealthy as well as substantial relief for renters, immigrants living in the country illegally, and business owners hit hardest by the coronavirus.

Many of the budget’s key initiatives are aimed at jump-starting the recovery of a state that was the onetime epicenter of the pandemic.

It includes $2.3 billion in federal funds to help tenants who are late on rent; $1 billion in grants and tax credits for small businesses that suffered from the economic downturn; and a $2.1 billion fund to provide one-time payments for immigrant workers who did not qualify for federal stimulus checks or unemployment benefits, according to budget highlights released by the governor’s office.

All were proposals championed by Democratic leaders of the state Legislature, who leveraged Gov. Andrew Cuomo’s weakened political position to forcefully lobby for their priorities, including a long-sought personal income tax rate increase on individuals making over $1 million — overcoming the governor’s longtime aversion to raising taxes on the rich.

Two new brackets would also be introduced for incomes over $5 million and $25 million. The changes mean wealthy residents of New York City would effectively be subject to the highest combined local and state personal income tax rates in the nation, surpassing California.

The ramifications of the tax changes are sure to spur a contentious debate in the coming months. Progressives see them as essential to help pay for new liberal priorities for vulnerable New Yorkers, especially after the pandemic drove up unemployment and shut businesses.

But there are concerns among conservatives that higher taxes could lead rich New Yorkers, some of whom may already be working remotely, to move permanently to lower-tax states, such as Florida.

The spending plan — roughly 10% higher than last year’s budget — is far from the doomsday scenario officials envisioned earlier this year, when the state was looking at addressing a daunting $15 billion budget hole over two years through steep cuts and tax increases.

Since then, revenues have been better than initially anticipated, even though they still lag behind prepandemic levels. The state also received a one-time $12.6 billion infusion in direct aid from Washington, as well as billions of dollars in education and transportation funds.

Even as the governor confronts multiple sexual harassment allegations and calls for his resignation, Cuomo was able to claim some of his own policy wins in the budget negotiations, where governors traditionally wield outsize influence.

The budget deal will authorize mobile sports betting, bringing a potential revenue stream of nearly $500 million a year to New York, which has seen neighboring states like New Jersey and Pennsylvania seize that market. But proposals to fast-track casino development in the New York City region were kicked out of the budget.

Cuomo successfully fought for the inclusion of $1.3 billion that will help pay for a plan to redevelop the blocks near Penn Station in Manhattan, a contentious project that could include 10 new towers and has already drawn the rebuke of local community boards and elected officials. The state funding, however, would be limited to transportation-related improvements, according to budget documents.

The governor also secured the state’s authority to withhold 50% of state and federal funds from localities that fail to produce plans to reform their police departments, which Cuomo mandated through an executive order in the wake of the George Floyd protests last year. It also includes a program to make broadband internet more affordable and a package to improve patient services in the state’s nursing homes.

The budget, which still needs to pass the Legislature and be approved by the governor, would increase spending significantly in New York, already one of the highest-spending states, leading some fiscal analysts to warn about the perils of sustaining record spending levels once federal funds dry up.

The new tax hikes on the rich and increases to corporate taxes are expected to generate more than $4 billion in additional revenue each year. The tax increases are expected to affect 50,000 taxpayers, said Liz Krueger, a Democrat and the chairwoman of the finance committee in the state Senate.

“This is not a tax increase on the vast, vast majority of New Yorkers,” Krueger said on the upper chamber’s floor Tuesday. Even so, the increases will be levied on an integral part of the state’s tax base: The top 2% of the highest-income New Yorkers pay about half of the state’s income taxes.

Under the changes, the personal income tax rate would increase to 9.65% from 8.82% for individuals making over $1 million and for joint filers making more than $2 million.

Two new personal income tax brackets would also go into effect: 10.3% for income between $5 million and $25 million, and 10.9% for income over $25 million. The new rates would expire by the end of 2027.

The late budget — it was due April 1 — had resulted in thousands of state employees’ paychecks being delayed, though the state comptroller said late Tuesday that his office would release the payroll, after an emergency appropriations bill was passed.

The so-called excluded workers fund was among the final sticking points in the budget negotiations, prompting some infighting among Democrats, including some who fear that it could be used as a political wedge issue with moderate suburban voters in 2022. The details were still becoming clear, but it would effectively provide unemployment benefits for workers living in the country illegally who lost income or were unemployed during the pandemic and did not qualify for federal aid. Applicants would need to provide certain documents to verify their identity, residency and work-related eligibility.

Conservatives blasted the plan, with Nick Langworthy, the Republican Party chairman, calling it “woke insanity.”

“Democrats are about to pass a budget that raises taxes on New Yorkers and businesses by $4 billion while enacting a $2 billion fund that will provide $25,000 payouts to illegal immigrants,” Langworthy said Tuesday.

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