New York State Coffers Swell, Riding Covid-19 Recovery

A better-than-projected economic recovery and a massive influx of federal aid have stuffed New York state’s once-bare coffers, a reversal of fortune that is leading some fiscal watchdogs to again question the state’s decision earlier this year to increase income taxes on high earners.

Gov. Andrew Cuomo

and Democrats who control the state Assembly and Senate approved a $212 billion budget in April that included $4.3 billion of new, annualized revenue from increases in the personal income and corporate franchise taxes. The state also received $30 billion from the federal American Rescue Plan Act approved in March, including $12.7 billion of general aid that lawmakers plan to use over the next four fiscal years.

In late May, Mr. Cuomo’s budget office released a financial plan that increased the state’s income-tax projections by $4.1 billion from initial estimates in January—a revision that excluded the effect of the new, higher tax rates and reflected a better economic forecast.

And last week, Comptroller Tom DiNapoli issued a monthly cash report which found the state’s actual receipts were around $4 billion ahead of those rosier projections as a result of robust sales and income-tax collections.

“It’s just incredible,” said E.J. McMahon, research director for the Empire Center, a fiscally conservative think tank. “I picture the governor’s budget office as being like a drug dealer’s kitchen, with bricks of $100 bills hidden in the microwave, under the sink, in the back of the freezer.”

Both Mr. McMahon and Andrew Rein, president of the nonpartisan watchdog Citizens Budget Commission, said earlier this year that the federal aid obviated the need for income-tax increases. Mr. Rein said in an interview last week that the governor’s fiscal aides had enough information in March to know that the economic situation would lead to better collections for income taxes, which are the largest state revenue source.

Mr. Rein said he was stunned when he saw the updated financial plan in May.

“Do we really need the money? No. Would we be more competitive if we shortened or reduced some of that tax increase? Certainly,” he said.

The Democratic governor proposed the first income-tax increase of his three terms in office this year, saying that Covid-19 had battered the economy. Mr. Cuomo has argued against raising taxes for years, saying he feared increases would prompt wealthy New Yorkers to migrate to other states. The governor initially suggested that a robust federal package would remove the need to raise taxes.

But as he faced down multiple investigations and calls for his resignation, he agreed to legislators’ demands for a multiyear increase in funding for public school “foundation aid” as well as the income-tax increase to pay for it.

“The state has plans to invest revenues over the long term in communities that were suffering long before Covid,” said Michael Kink, executive director of Strong Economy for All, a coalition of unions that supported the tax increase. “I think lawmakers recognized this session that tax policy was not about a short-term crisis, it was about long-term investments for a broader, stronger recovery that includes addressing racial equity squarely and directly.”

The governor’s budget director,

Robert Mujica,

said Mr. Cuomo’s position was consistent. He said the administration would now redouble its efforts to make sure state funding is fairly allocated among schools, now that “the revenue issue is off the table.”

Messrs. Mujica and DiNapoli said in interviews that it was too early to say if last week’s cash report was anything other than a temporary bump. They said it may take additional months before the full effects of remote work and potential taxpayer migration show up in state receipts.

Mr. DiNapoli urged his onetime colleagues in the state Legislature to use any extra money to bulk up reserves. But 2022 is an election year for the governor and all 213 state lawmakers, so the temptation to add initiatives that appeal to certain political segments will run high.

“We saw that during the budget process this year,” the Democratic comptroller said. “They said, ‘You know what? We want to spend that money and more.’ That’s their prerogative.”

THE QUESTION: Who was the only New York state comptroller to become president?

— Know the answer? Write me an email!

THE LAST ANSWER: Former New York Gov. Mario Cuomo was the only other governor to have appointed all seven members of the state’s Court of Appeals

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