A Closer Look at New York’s Finances Just last year, Governor Cuomo announced that New York state government was running a $1.1 billion surplus. This year, as of May 3rd, that surplus has ballooned to $5.9 billion, more than any other state in the country. According to a state law enacted earlier this year, Cuomo is allowed to transfer some of the surplus to municipal governments in the state, as long as they apply to participate in a new Local Property Tax Cap pilot program. In his budget plan for this year, Cuomo set aside $330 million to fund this program, which would cap the amount that schools and towns in the state can raise in property taxes, which can include increases in local tax rates and increased school-related expenses. It isn’t immediately clear how the state will actually use this money. That is because the state legislature has not yet passed a budget for the current fiscal year. When it does, though, it should specify how the $330 million will be used and how much of the surplus the state is allowed to transfer to the local governments. If the state goes over the $330 million cap, it could be forced to come up with an additional $1.8 billion to fully fund the program. Any additional money over the cap would have to be allocated through a tax on the state’s millionaires or through a tax increase. In addition to the surplus, Cuomo also promised the legislature that the state would bring in $1.9 billion more in taxes than expected in fiscal year 2019. This would include an extra $600 million in income tax revenue from the so-called “millionaires’ tax” and $1.5 billion from an increase in tobacco taxes. That still leaves a $400 million gap, which the governor has projected the state will pay for by borrowing against projected cash flows from the state’s retirement systems. How Long Will the State Budget Surplus Last? New York state and its municipalities face some tough budget decisions in the next fiscal year. With the additional surplus from 2018, that budget will likely add up to approximately $4.1 billion. The state’s Medicaid program will require $3.6 billion more in spending over the next two years to cover the rising cost of treating Medicaid patients. The state could also face $1 billion to $2 billion in shortfalls from its health care provider tax, as it appears that some providers have been filing for larger subsidies than they actually received. Additionally, it appears as though New York’s unemployment benefits program will run out of money sometime during the next fiscal year. This could force the state to pay out additional funds for unemployment benefits. The state could be forced to take on additional debt to meet its obligations in these areas, or Cuomo could cut taxes again in the hope of attracting more business to the state and increasing its revenue. What is Cuomo’s Plan for Budget Cuts? After the state’s budget surplus reaches $8.4 billion, the governor will have the option to divert some of the remaining funds into the state’s Special Reserve Account. This account holds $7 billion to $9 billion in special funds that were set aside to cover unfunded pension liabilities and other costs. The state has never moved much money out of this account, so it is still over $6 billion short of the amount it needs to fully cover these liabilities. Cuomo also has the option to use the surplus to increase its budget for education. This includes both the state’s direct public education budget and its school capital budget. For the fiscal year beginning on July 1st, the state has $50 billion in these budget categories, which is more than it has ever had. Cuomo also could use these extra funds to reduce corporate tax rates or to increase his proposed minimum wage, which he plans to increase from $9 to $15 per hour. He also plans to raise the minimum wage for New York City. Cuomo does not appear to have any specific plans for the other money, which could be used to cut other parts of the budget or to increase other spending. What Other Ways Could New York Make Budget Cuts? New York has a number of other budget decisions that it could make in order to try to close the current budget gap. The state could increase its reserve for state employee pension programs or its emergency Medicaid reserve. Another option would be to reduce the number of state employees and programs over which it has to take on increased expenses. The state could also make further cuts to its education program. This could include further cuts to existing education programs, cutting education and health benefits for retirees and low-income families, and raising local property taxes. What About Other Spending in New York? In addition to using budget surplus funds to fund the municipal program, the state could also use additional funding from the budget surplus to pay off some of its own obligations. These may include debt the state currently has on its balance sheet. Additionally, the state can make loans to private businesses for things like building projects. At the state level, this includes schools, hospitals, and other government-related infrastructure projects. The state also pays for state government programs out of the general fund budget, which could include further cuts to programs to save the state money. As we have previously discussed, Gov. Andrew Cuomo has proposed transferring more than $25 billion from the state’s pension fund to fund New York City schools. The two-year plan would increase current property tax rates by 1.95 percent and require the city to set aside $3 billion over the course of the deal. A $10 billion “rainy day” fund would also be established, so that money could be used to address budget shortfalls. New York City has already said it will be able to pay for the extra money without increasing education aid to students or cutting city services. While all of this may seem to be a good idea from a New York State perspective, there is still some doubt as to whether or not this deal will prove beneficial to the average New Yorker. The New York Times has taken a closer look at whether or not this plan would work in the city and surrounding area. One factor that is often overlooked, though, is what happens to New York City’s school aid when students who live in the outer boroughs choose to move out of New York City. While the idea of transferring money from the state’s education fund to the city could make sense from an equity standpoint, it would do little to benefit the average New York City student. Of the over 1 million children who attend city schools, only 1,000 are eligible to pay taxes on income over $200,000 a year. While they pay approximately 2 percent of total school spending, they generate roughly only one-third of a percent of total school spending. New York already has a large number of taxpayer dollars going to education expenses as it is. This includes special programs for students with disabilities, those on free lunches, and other programs meant to benefit children from low-income families. There are also a number of low-income students who don’t attend public school in New York City and instead attend non-public schools, charter schools, and other forms of subsidized education. The state does pay out more than $20 billion in state aid every year, as well. Since the state and city do not share the exact same budget, it is hard to say for certain if the money would benefit New York City in its entirety. Since New York City would not have to pay any taxes on this new money, however, it does appear to be a clear benefit for the city as a whole. Another argument against these transfers comes from the fact that many districts do not meet the requirements necessary to receive federal funding for schoolchildren. If they are forced to use city funds to increase school funding, these areas will not be eligible for federal dollars. This could impact certain states that also provide specific funding to help schools cover costs. Some areas would likely be at a disadvantage without this extra federal money, which could include areas in New York, New Jersey, and Pennsylvania. The potential for New York to raise school aid, as well as education spending, by a significant amount has also been called into question. One study by an education advocacy group has estimated that the state can only take on around $1 billion in increased spending without being subject to legal limits. It is likely that Cuomo would need to convince the state legislature to change its current pension reform plan or else look to the private sector for any changes to the city’s pensions. This could mean that any plans to increase school aid could end up creating higher taxes for New York residents. There is also the question of whether or not other local government systems like suburban schools or private schools could handle an increase in local tax revenue. One main point of contention, however, is how much money this deal will actually generate for the state. The state has promised