Hochul’s $227 Billion Budget Plan Targets NYC’s Urgent Needs

ALBANY, N.Y. — Gov. Kathy Hochul unveiled on Wednesday a $227 billion state budget aimed at tackling some of New York City’s most pressing needs, including $1 billion to address the migrant crisis and a multiyear plan to salvage the finances of the city’s ailing subway system.

The governor plans to help the Metropolitan Transportation Authority cover its budget gap of nearly $3 billion by 2025 by raising payroll taxes on downstate businesses that benefit from the transit network, generating more than $800 million. The governor also proposed diverting revenues from three planned casinos in the New York City region to help the authority, and called on the city to pitch in nearly $500 million, all of which could add up to $1.3 billion in additional yearly funding for the subway system.

“The New York City economy drives the state of New York and the M.T.A. helps drive the New York City economy,” Ms. Hochul said after releasing her budget proposal in the State Capitol’s ornate Red Room. “So it’s critically important to all of us.”

Ms. Hochul’s budget proposal officially kicked off the annual negotiations between the governor and lawmakers over how to spend over $220 billion in state resources for the 2024 fiscal year, which begins April 1.

The negotiations are bound to expose ideological rifts and power struggles between the governor, a moderate Democrat who is looking to establish her place in Albany after winning her first full term, and more left-leaning Democrats in control of the State Legislature, who have already successfully challenged her this year.

Just two weeks ago, a Senate committee rejected her nominee for chief judge, a stunning defeat that marked the first time a governor’s pick for New York’s highest court was rejected, and one that may linger over the typically contentious budget negotiations.

The governor’s proposed spending plan was as much a delineation of the state’s fiscal health as it was a declaration of Ms. Hochul’s political leanings, as she continues to cast herself as a problem-solving pragmatist who is also committed to her party’s most liberal priorities.

As such, Ms. Hochul committed over $1 billion to reimburse local governments for a share of spending on emergency shelters for migrants; increased overall spending on health care, including $27.8 billion on Medicaid; and raised spending on public education, including a total of $34.5 billion for school districts, or 10 percent more than the previous budget, the biggest ever year-to-year increase.

While she did not propose raising income taxes, she proposed extending a tax hike on large corporations that is scheduled to expire at the end of this year for another three years, perhaps partially placating the party’s left wing, which has called on her to make the tax increase permanent.

But she also put forth proposals to raise tuition at public colleges and pave the way for more charter schools, immediately drawing criticism from some Democratic lawmakers, including Carl E. Heastie, the speaker of the Assembly, who said tuition hikes would be “a difficult” proposal for members of his conference to stomach.

The governor’s spending plan was also filled with dire warnings of future financial pitfalls, which she used to justify some of the fiscally conservative accounting maneuvers she laid out.

Anticipating lower tax revenues as a result of a potential recession this year, Ms. Hochul projected that the state would face a $5.7 billion budget gap in the 2025 fiscal year, and a total gap of $22 billion between 2025 and 2027. That outlook stood in stark contrast to Ms. Hochul’s rosy financial plan from last year, which did not forecast any budget gaps in future years, mostly as a result of a boost in tax revenues and federal pandemic aid.

To brace the state for future fiscal cliffs, Ms. Hochul proposed accelerating the amount of money the state would steer to its reserves, using a large chunk of this year’s $8.7 billion surplus. Under her plan, the state would add up to $20 billion by the end of this fiscal year, bringing reserves up to more than 15 percent of state spending.

Over the next two months, Ms. Hochul and the Legislature’s progressive wing may well spar over the level of spending on child care programs, housing and public schools, but there are also nonfiscal issues that could play a divisive role.

The governor called for a third round of revisions to the state’s bail laws, a politically explosive issue that has for years divided Democrats in the State Capitol, pitting criminal justice reforms against fears over crime.

The governor is effectively seeking to give judges more latitude when setting bail, saying on Wednesday that she was “looking forward to a thoughtful conversation with the Legislature about our bail laws.”

While governors tend to hold outsize power during the budget process, Ms. Hochul will enter the negotiations somewhat politically weakened, but perhaps also less inclined to compromise with lawmakers whom she may see as having crossed her.

State Senator Brad Hoylman-Sigal, a Democrat who chairs the Judiciary Committee, which blocked Ms. Hochul’s chief judge nomination, said lawmakers respected the governor’s role as the architect of the budget, but would fight her “professionally and respectfully” on the issues they disagreed on.

“I think there have been some lines drawn by progressive advocates on issues leading up to the budget,” Mr. Hoylman-Sigal said. “So this will be a moment, I hope, where we can agree that the needs of New York are so great that we have to seek support from the richest people and corporations in order to address them.”

There were also several proposals that would benefit New York City charter schools, including a measure to increase the per-pupil funding by 4.5 percent according to the current statutory formula, and one that would eliminate the cap on the number of such schools allowed in the city.

Such a move, which was championed by Ms. Hochul’s Republican challenger, former Representative Lee Zeldin, in the last election, is likely to find opposition among the teachers’ unions that have supported Ms. Hochul, as well as some Democrats.

On Wednesday, State Senator John Liu, a Democrat from Queens who leads the New York City Education Committee, called Ms. Hochul’s charter school proposal “a nonstarter.”

“The cap has historically served to strike the balance between giving parents so-called choice and the constitutional requirement to keep public schools open,” he said. “It’s not common sense to upset that balance.”

The governor’s tuition increase of up to 3 percent for both the State University of New York and the City University of New York systems has also been decried by some Democrats, as well as by student leaders, even as Ms. Hochul described them as “modest.”

The tuition increase has amplified calls from a coalition of progressive activist groups calling for a slate of new tax increases on the superrich to fund far-reaching left-wing policies, such as universal child care and tuition-free public college for state residents.

Ms. Hochul did propose one tax increase: Raising taxes on cigarettes by $1 to $5.35. She will also move to ban the sale of all flavored tobacco products, expanding the current ban on flavored electronic cigarettes.

To further help the M.T.A., Ms. Hochul is committing $300 million in one-time state aid to tackle a drastic drop in operating revenues triggered by the coronavirus pandemic, which has heavily depleted ridership as many white-collar workers — and their fares — have abandoned mass transit and worked from home. Many people have also stayed away from the subway because of continuing fears over Covid-19 and crime.

The state’s efforts, which were reported earlier by The Wall Street Journal, are expected to stave off service cuts, but may not avert expected subway and bus fare increases.

A spokesman for Mayor Eric Adams said that his office would review the governor’s proposal calling on the city to contribute $500 million to the transportation authority.

The governor said that she wants to replace 421a, a contentious and now-expired tax break to incentivize developers of big apartment buildings in New York City to build more affordable housing. She did not, however, include a replacement program in her budget proposal, opting instead to work with state legislators on a new program after they defeated her proposal last year.

But Ms. Hochul announced her intention to extend a deadline — from June 2026 to June 2030 — by which developments must be completed to benefit from the now-expired tax break. Industry groups, which celebrated the extension on Wednesday, had said that many projects, which might have otherwise qualified for the tax break, were in danger of not being built at all because they would not meet the deadline.

One of the more significant proposals in Ms. Hochul’s budget would allow the New York Power Authority to build and operate renewable energy projects. The idea has been circulating in Albany for several years, and was the subject of a fervent push by progressive Democrats in the last legislative session.

The budget proposal also included a $455 million loan to the New York Racing Association to renovate Belmont Park, winterize the renowned track and make other improvements to allow year-round horse racing there. That could pave the way for the state to potentially repurpose the Aqueduct Racetrack in Queens into a new full-fledged casino.

Reporting was contributed by Mihir Zaveri, Jay Root, Grace Ashford and Ana Ley.