Hochul’s budget to extend millionaire’s tax, but leaves MTA funding question open

Gov. Kathy Hochul is set to introduce a record $252 billion state budget on Tuesday, which would tick up spending compared to last year’s agreed upon budget as the state continues to face future budget gaps.

According to state Budget Director Blake Washington, New York is expected to end the current fiscal year, which comes to a close March 31, with a surplus of $3.5 billion thanks to higher-than-expected tax collections. Most of that is coming from personal income tax revenue. The state is also increasing its early income tax revenue projections for the next fiscal year by $1.8 billion, bringing the surplus to $5.3 billion. Washington said that will be used to fund many items in Hochul’s affordability agenda, including a $1 billion tax cut for middle-class New Yorkers, an increase to the child tax credit and and $300 to $500 rebate checks. 

At the same time though, the state’s future budget gaps have increased slightly. They are predicted to be $6.5 billion in the 2027 fiscal year, $9.8 billion the following year and $11 billion in the 2029 fiscal year. The most recent projections from the Division of the Budget put those first two holes at $6.2 billion and $7.1 billion. But Blake called the upward adjustments to the outyear gaps “manageable.” 

On Metropolitan Transportation Authority funding, Washington said that the state and New York City are pledging $3 billion each to the next capital plan, but nothing beyond that. The MTA currently does not have a 2025-2029 capital plan after legislative leaders rejected it over an unfunded $33 billion hole. “It’s not a punt,” Washington told City & State. “It's a recognition that the Legislature clearly has some questions and some needs out of any future capital plan.” He said that the executive branch will need to have “continued dialogue” with the Legislature about funding the five-year plan.

Looking ahead to some of the future budget gaps, Washington said that the governor is proposing to extend the state’s so-called millionaire’s tax on New York’s highest earners now, rather than the year it would sunset. Passed in 2021, the law temporarily increased the tax rates of those making more than $5 million and would have expired by 2027. According to Washington, the governor is proposing extending the tax until 2032 “to cover gaps and to cover the current year spending that we're advancing here.”

In school funding, Hochul is set to propose $37.4 billion in state aid, up from the $35.9 billion approved in last year’s enacted budget. Although the governor last year pitched ending a practice known as hold harmless that ensures schools get at least as much aid as the year before, Washington said Hochul is keeping the measure in place this time. She is instead proposing to adopt two more other changes to the Foundation Aid formula suggested by the Rockefeller Institute, updating the census poverty data and using public assistance data other than free school lunch participation to determine economic disadvantage. Washington said the change will result in 311 districts that would have gotten no increase in aid getting 2% increases.