New York State leaders announced they had reached an agreement on Tuesday on a $212 billion state budget that includes tax increases on the wealthy as well as substantial relief for renters, undocumented immigrants and business owners hit hardest by the coronavirus.
Many of the budget’s key initiatives are aimed at jump-starting the recovery of a state that was the onetime epicenter of the pandemic.
It includes $2.3 billion in federal funds to help tenants late on rent; $1 billion in grants and tax credits for small businesses that suffered from the economic downturn; and a $2.1 billion fund to provide one-time payments for undocumented workers who did not qualify for federal stimulus checks or unemployment benefits, according to budget highlights released by the governor’s office.
All were proposals championed by Democratic leaders of the State Legislature, who leveraged Gov. Andrew M. Cuomo’s weakened political position to forcefully lobby for their priorities, including a long-sought personal income tax rate increase on individuals making over $1 million — overcoming the governor’s longtime aversion to raising taxes on the rich.
Two new brackets would also be introduced for incomes over $5 million and $25 million. The changes mean wealthy residents of New York City would effectively be subject to the highest combined local and state personal income tax rates in the nation, surpassing California.
The ramifications of the tax changes are sure to spur a contentious debate in the coming months. Progressives see them as essential to help pay for new liberal priorities for vulnerable New Yorkers, especially after the pandemic drove up unemployment and shut businesses. But there are concerns among conservatives that higher taxes could lead rich New Yorkers, some of whom may already be working remotely, to move permanently to lower-tax states, such as Florida.
The spending plan — roughly 10 percent higher than last year’s budget — is far from the doomsday scenario officials envisioned earlier this year, when the state was looking at addressing a daunting $15 billion budget hole over two years through steep cuts and tax increases.
Since then, revenues have been better than initially anticipated, even though they still lag behind prepandemic levels. The state also received a one-time $12.6 billion infusion in direct aid from Washington, as well as billions of dollars in education and transportation funds.
Even as the governor confronts multiple sexual harassment allegations and calls for his resignation, Mr. Cuomo was able to claim some of his own policy wins in the budget negotiations, where governors traditionally wield outsize influence.
The budget deal will authorize mobile sports betting, bringing a potential revenue stream of nearly $500 million a year to New York, which has seen neighboring states like New Jersey and Pennsylvania seize that market. But proposals to fast-track casino development in the New York City region were kicked out of the budget.
Mr. Cuomo successfully fought for the inclusion of $1.3 billion that will help pay for a plan to redevelop the blocks near Penn Station in Manhattan, a contentious project that could include 10 new towers and has already drawn the rebuke of local community boards and elected officials. The state funding, however, would be limited to transportation-related improvements, according to budget documents.
The governor also secured the state’s authority to withhold 50 percent of state and federal funds from localities that fail to produce plans to reform their police departments, which Mr. Cuomo mandated through an executive order in the wake of the George Floyd protests last year. It also includes a program to make broadband internet more affordable and a package to improve patient services in the state’s nursing homes.
The budget, which still needs to pass the Legislature and be approved by the governor, would increase spending significantly in New York, already one of the highest-spending states, leading some fiscal analysts to warn about the perils of sustaining record spending levels once federal funds dry up.
The new tax hikes on the rich and increases to corporate taxes are expected to generate more than $4 billion in additional revenue each year. The tax increases are expected to affect 50,000 taxpayers, said Liz Krueger, a Democrat and the chairwoman of the finance committee in the State Senate.
“This is not a tax increase on the vast, vast majority of New Yorkers,” Ms. Krueger said on the upper chamber’s floor on Tuesday. Even so, the increases will be levied on an integral part of the state’s tax base: The top 2 percent of the highest-income New Yorkers pay about half of the state’s income taxes.
Under the changes, the personal income tax rate would increase to 9.65 percent from 8.82 percent for individuals making over $1 million and for joint filers making more than $2 million.
Two new personal income tax brackets would also go into effect: 10.3 percent for income between $5 million and $25 million, and 10.9 percent for income over $25 million. The new rates would expire by the end of 2027.
The late budget — it was due on April 1 — resulted in thousands of state employees’ paychecks being delayed, according to the state comptroller.
The so-called excluded workers fund was among the final sticking points in the budget negotiations, prompting some infighting among Democrats, including some who fear that it could be used as a political wedge issue with moderate suburban voters in 2022. The details were still becoming clear, but it would effectively provide unemployment benefits for undocumented workers who lost income or were unemployed during the pandemic and did not qualify for federal aid. Applicants would need to provide certain documents to verify their identity, residency and work-related eligibility.
Conservatives blasted the plan, with Nick Langworthy, the Republican Party chairman, calling it “woke insanity.”
“Democrats are about to pass a budget that raises taxes on New Yorkers and businesses by $4 billion while enacting a $2 billion fund that will provide $25,000 payouts to illegal immigrants,” Mr. Langworthy said on Tuesday.
The rent relief program is expected to be an urgent lifeline for low-income tenants who owe rent or are at risk of eviction because they are financially struggling as a result of the pandemic. Eligible renters would be allowed to cover up to 12 months of rent and costs of utilities, as well as three months of prospective rent, financed by federally appropriated funds.
The deal also includes $600 million in assistance for homeowners and property tax relief for New Yorkers earning under $250,000. There’s also $250 million for New York City’s struggling public housing authority and $100 million to facilitate the conversion of hotels and vacant property into affordable housing, an idea that picked up steam as much of Manhattan’s commercial districts emptied out during the pandemic.
School districts across the state are also poised to get a major infusion of cash — some $4.2 billion — over the next three years. The money will provide extra support to districts with large numbers of high-needs students and struggling schools, including New York City. The state will distribute roughly $1.4 billion per year for the next three years, then provide roughly $4.2 billion for schools annually, a major increase from current funding levels.
The provision is the result of a two-decade advocacy and legal battle, known as the Campaign for Fiscal Equity, to compel New York to boost school funding under a formula focused on high-needs districts. In 2006, the State Court of Appeals ruled that New York was denying children their right to sound, basic education, which is guaranteed under the State Constitution. The new funding outlined in this year’s budget fully settles the lawsuit’s mandates.
This year marks the first time the Legislature has committed to the financial obligations set out in the lawsuit.
Eliza Shapiro contributed reporting.