While the New York State Fiscal Year 2019 Budget adopted by the State Legislature does not include some of the more objectionable proposals of the Executive Budget, it does not improve the State’s fiscal position. The budget gap will be closed using short-term measures, including settlement funds and revenue from health insurance companies, instead of restraint in and reform of spending commitments. School aid will grow by $1 billion, without substantial adjustments to better target dollars to high-need school districts; economic development spending will grow by at least $600 million, without any “database of deals” or other actions to improve the transparency, accountability, or efficacy of these investments; and wasteful property tax relief credits will be extended and grow to $1.3 billion annually.

The Budget also does not address the troubles of the Metropolitan Transportation Authority (MTA) in a meaningful way. New surcharges will be placed on trips made by taxis and for-hire vehicles in New York City’s central business district, but the can will be kicked down the road on a fuller congestion pricing plan to reduce traffic and provide a significant long-term revenue source.  Instead, to increase short-term revenues, the City of New York will be forced to provide $418 million for the Subway Action Plan or have its sales tax revenues withheld—even though New York City taxpayers pay the overwhelming majority of MTA taxes and subsidies.

State lawmakers deserve credit for making changes to the State’s tax code in response to the Tax Cuts and Jobs Act. Creation of an Employer Compensation Expense Tax, State and local funds for charitable contributions, and other technical fixes are changes needed to blunt the impact of the federal tax law, particularly for taxpayers that will be adversely affected by the cap on state and local deductions (SALT cap). The State’s decoupling from the federal tax code will also eliminate a $1 billion unplanned tax increase, but may present new challenges in administration. State officials must vigilantly monitor and assess the effects of these changes on taxpayers and the economy, and should also work to design and adopt an Unincorporated Business Tax for pass-through entities during the Legislative Session.