Crucial questions in the state budget fight

It's deadline week in Albany as the Legislature and Gov. Andrew Cuomo attempt to agree on a state budget, which in New York's twisted way of governing will include many nonbudget issues. Here's a guide to interpreting what will happen between now and the start of the fiscal year on April 1.

Will spending go up by 2% or less? Another of the governor's most often repeated talking points is that he has held state spending to that modest increase each year. As the Citizens Budget Commission has pointed out repeatedly, his recent budget increases of 2% have been achieved with ever more fiscal tricks. So will the governor claim a small increase, and will he be telling a fiscal fib?

How big will the state reserves be? California and Texas have socked away $15 billion for the next downturn. While the Cuomo administration tries to fudge the reserves number for New York, the fact is, the governor has put away about $2.5 billion, which in a recession would last months, not years, like the reserves of the nation's two other largest states. The Citizens Budget Commission recently put New York's potential revenue loss from an economic downturn at $34 billion, more than 10 times what the state has reserved. The Democratic-controlled Legislature is not about to act on this looming fiscal disaster, and no one should feel sorry for lawmakers when the disaster hits. The special-interest groups in education and health care, which see no evil and hear no evil, won't deserve any sympathy either when they face big cuts as revenues fall.

The tariff is gaining steam with lawmakers but has the real estate industry rigorously lobbying against it

A pied-à-terre tax on properties worth $25 million or more could slash the value of those homes by nearly half, analysis by the Wall Street Journal shows.

The tax, which was first introduced by State Senator Brad Hoylman in 2014, aims to levy an annual fee on those who own pricey second homes in New York valued at $5 million or higher and would be part of the state budget for the fiscal year that starts on April 1.

An owner of a multimillion-dollar apartment that would be subject to the tax told the paper that the levy would have cataclysmic impacts on New York City’s luxury real estate market and scare off those looking to make long-term investments.

“The tax is a disaster,” the owner told the WSJ. “If you actually put the tax in place, you would massively reduce the value of real estate.” That’s a concern shared by the Citizens Budget Commission, a fiscal watchdog group, which in a recent blog post called the pied-à-terre tax a sort of misguided shortcut to property tax reform.

The group called the proposal “appealing but problematic” and stressed that “a pied-à-terre tax is not a substitute for real property tax reform that increases equity.”

“Lawmakers should seriously consider lower tax rates that will do less harm to the attractiveness of New York City,” the CBC wrote.

Many New Yorkers know the city has trouble completing construction projects on time and under budget. Projects like school renovations and the build-out of park facilities are capital projects, the subject of increasing scrutiny and some reform, with more promised, as frustrations persist and residents, watchdogs, lawmakers, and other city leaders seek answers

The City Charter mandates certain reporting on the process to the Council and the public, but Council Member Gibson said these reports “often do not relate to one another or the city’s real spending in a meaningful way.” The two bills, which had the support of the Council members present at the hearing, are intended to address these issues. Gibson said that the proposals would give the Council and public “a wholistic and detailed look at all capital projects that are in progress throughout the city.”

The first, Intro. 32, sponsored by Council Member Andrew Cohen, a Bronx Democrat, would require city agencies to provide electronic notification of any delays or cost changes for capital projects. This is very similar to one of the charter revisions that Comptroller Stringer is proposing. The second, Intro. 113, sponsored by Council Member Brad Lander, a Brooklyn Democrat, would create a database to track citywide capital projects. Finance committee chair Daniel Dromm, a Queens Democrat, said that “transparency in the capital process is key to providing assurances to the public that city resources are being put into good use in an efficient and effective manner.”

Intro. 32 currently has ten Council sponsors, while Intro. 113 has 35 sponsors, well above the threshold required for passage in the 51-seat Council.

Nonprofit watchdog Citizens Budget Commission submitted testimony in support of Intro. 113 at the February hearing, saying that “the capital budget is just as important as the operating budget and should be subject to the same monitoring and scrutiny.” Gibson brought up the bills again at the initial preliminary budget hearing.

The Citizens Budget Commission is sounding the alarm that it believes the state face a budget gap of as much as $34 billion over three years if the nation tips into a recession.

The nation is currently in the midst of a nine-year economic expansion. However, the institute sent out a report on Tuesday stating that if there is a downturn in the economy, income tax collections could come in anywhere from $22 billion to $44 billion below projections over three years.

The CBC pointed out that the state collects about $19 billion from the top 1-percent of personal income tax filers. That money funds about one fifth of the state coffers. There are also wide swings in the capital gains tax collections. In 2014, there was about $24.2 billion in capital gains on investments among state residents compared with only $20.6 billion in 2016. Each billion dollars of capital gains equates to $83 million in state tax revenues, according to the CBC.

As Albany lawmakers continue to debate how the state will adequately fund the state’s transportation infrastructure, the Citizens Budget Commission in a report released on Wednesday is advocating for implementing congestion pricing in New York City as one way to rise needed revenue.

The report, authored by Jamison Dague, director of infrastructure studies at the Citizens Budget Commission, chronicles the factors fueling the state’s transportation infrastructure needs and the years of funding shortfalls that have both the bridge and highway network, as well as its mass transit system in disrepair.

The report delves into a host of funding options that could be implemented to increase revenues, particularly: raising user fees (fuel taxes, motor vehicle taxes and tolls) and instituting congestion pricing.

“Placing New York’s highway system on a more sound fiscal footing requires the state to pursue multiple options for increasing revenue, including increases to current user fees—fuel taxes, motor vehicle fees, vehicle fees, and employing congestion pricing in New York City,” Dague writes. He adds that raising fuel, taxes, vehicle fees and toll rates to those charged by neighboring states, could raise significant funding in the short term.

What is now a projected $490 million deficit for the 2022 fiscal year could surge to $15 billion amid national economic malaise, the Citizens Budget Commission of New York warned Wednesday.

David Friedfel, the commission's director of state studies, said the uncertain economic climate should prompt the state to boost its reserve fund deposits so it can have a bigger cushion should revenues taper off.

Past administrations, he noted, turned to a temporary tax surcharge on high earners, but the so-called millionaire's tax has already been extended.

"We don't have that tool to go to now," he said.

New York's rainy day funds would be exhausted in less than a year if the state has to respond to an "inevitable economic downturn," according to a new report from the Citizens Budget Commission.

The fiscal watchdog is urging state lawmakers and Gov. Andrew M. Cuomo to take immediate action so New York can withstand a significant decrease in revenues that would accompany a recession. The state's budget for the coming fiscal year is due on March 31.

The CBC recommends more than $1 billion in cuts from the governor's initial $174 billion spending plan, and that additional funds be set aside in reserve for future years. They're forecasting a $7.4 billion budget hole if a recession hits, which would dwarf the $2.5 billion Cuomo wants to set aside in the budget for a fiscal emergency.

"The state has not taken advantage of the long recovery to plan for an inevitable economic downturn," reads the group's report. "The state's fiscal cushion is insufficient to fill budget gaps in a recession."

State Budget Director Robert Mujica maintained that the CBC's analysis reinforced Cuomo's position that "now is not the time to increase spending."

The deadline for a new state budget is now just days away, and the real estate industry is pulling an eleventh-hour effort to try and kill a proposed tax it says would cripple the entire residential market.

The pied-à-terre tax, as it is known, would put an annual tax on homes worth north of $5M that are not the owner's primary residence. The proposal has widespread support in Albany, and its advocates say it will generate hundreds of millions of dollars to fix the city’s crumbling infrastructure. The plan has real estate developers and brokers in a panic, arguing the tax comes from a “soak the rich” mentality and will ultimately drive down prices, cost jobs and disrupt the entire construction and development market.

Analysis from City Comptroller Scott Stringer pegs funds from the tax at a minimum of $650M every year. The legislation's sponsor, state Sen. Brad Hoylman, said in a statement that the budget “fights for the needs of all New Yorkers — not just the wealthiest one percent.” “If you can afford a $5M condo as a second home you can afford to help the City a little more. A pied-à-terre tax would bring in as much as $650M yearly. That’s $$$ to fix our subways, repair NYCHA, and build affordable housing,” Cuomo tweeted last month, with a link to a New York Times article about Ken Griffin’s $238M penthouse purchase at 220 Central Park South. He also said publicly that if people can spare $5M for a "little Manhattan getaway” they can afford to pay the tax, according to The Wall Street Journal. That publication’s analysis found the owner of a home valued at $41M would be on the hook for an extra $1M in taxes every year.

REBNY disputes the comptroller’s figure of $650M, arguing the revenue the measure would actually bring in is around half that much, Banks said. REBNY believes the tax would apply to fewer homes than the government estimates. An analysis based on Terra Holdings data has the figure at $372M per year, Crain’s New York Business reports. The Citizen’s Budget Commission, too, has described the proposal as “appealing politically” but “problematic” and is advocating for property tax reform. “I think there is still a lot to [be] clarified and spelled out in great detail about how this would work,” CBC Director of City Studies Ana Champeny said.

New York spends 90 percent above the national average per pupil on its public schools, and state aid sent to districts has leaped 42 percent since 2012.

Yet once again Gov. Andrew Cuomo, state lawmakers and education advocates are in a pitched battle over how the money is distributed and how much more is needed to educate New York's roughly 2.6 million students.

New York really only needs to spend an additional $164 million in the coming year aimed at about 160 districts so each school is offering a "sound, basic education," as prescribed in a 2006 court case focused on New York City, according to the Citizens Budget Commission, a business-backed think tank.

"Despite contrary claims, the majority of districts already have sufficient resources to fund" a sound, basic education, the group said in a report March 7.

The MTA revealed on March 18 vast service improvements over last year’s numbers in February with subways and buses either on or near schedule due to the Subway Action Plan and another initiative to raise the speed limit of trains to meet deadlines.

But while service may be improving, a different kind of concern is now broadening across Queens: falling debris from the 7 train trestle in Long Island City and Woodside, and now the A train in Ozone Park.

The 2015-2019 Capital Plan lists the station as being in a state of good repair with $34.8 million committed to different projects at station pertaining to electronic equipment.

But a study from the Citizens Budget Commission listed the Woodside Station among the 33 worst out of the 472 stations in the system citywide, and the real problem comes down to funding the agency.

Watchdog group says 1-cent-per-mile fee could raise $1.2 billion to fix state highways, fund mass transit

New York should wean itself off its reliance on gas taxes and consider charging motorists by the mile to pay for roads and bridges, a watchdog group said in a report released Tuesday.

As rising vehicle fuel-efficiency cuts into gas-tax revenues, the Citizens Budget Commission says a statewide mileage-based fee at 1 cent per mile could raise $1.2 billion a year.

Other states are raising gas taxes to make up for funding shortfalls caused, in part, by improving fuel efficiency and the growing popularity of hybrid and electric vehicles.

The Citizens Budget Commission, a nonpartisan fiscal watchdog, said New York should pursue such traditional revenue raisers. But, longer-term, it should also consider the mileage-based fees, which are calculated by logging a vehicle’s odometer or using GPS to track travel.

As the deadline for a new state budget looms in Albany, one formerly stalled piece of legislation—the pied-à-terre tax, to be levied on second homes in NYC valued at $5 million or higher—is gaining steam, with support from both state and city legislators.

But New York’s powerful real estate industry is now flexing its muscle over the tariff, according to the Wall Street Journal, which could change the proposal’s fate. And the Citizens Budget Commission, an independent fiscal watchdog group, recently called the proposal “appealing but problematic” in a blog post, noting that it’s “not a substitute for real property tax reform that increases equity.”

A proposed second-home tax has been lingering in the state legislature since 2014, when it was first proposed by Sen. Brad Hoylman. But broad support for the bill didn’t coalesce until earlier this year, when hedge funder Ken Griffin became the owner of a $238 million penthouse at 220 Central Park South, which is the single most expensive home purchased both in New York City and the United States.