March 2024

Key Findings

• Raise revenue through changes to the personal income tax, capital gains taxes, and corporate & business taxes.
• Reject the executive budget’s cuts to education funding and home care.
• Pursue new investments in SUNY and CUNY, fund financially distressed hospitals, invest in new affordable housing and renewable energy, and rebuild the state’s workforce.

The New York State Senate and Assembly will soon release their proposals for the fiscal year 2025 budget. Following last week’s revenue consensus, the legislature will be able to propose $1.3 billion more in spending than the executive budget. This additional revenue will allow the legislature to restore many of the budget cuts proposed by the executive budget, especially to school aid and home care. The legislature can, however, go beyond restoring the proposed cuts and put forward deeper investments in public services that address New York’s affordability crisis. These investments will require raising additional revenue.

The Fiscal Policy Institute recommends three sets of revenue options necessary to support deeper investments in education and higher education, health care, housing, and climate policy. Further background on each revenue option and policy area can be found in FPI’s fiscal year 2025 budget briefing book.

The fiscal year 2025 executive budget includes no significant revenue raisers, with revenue actions limited to making permanent certain temporary provisions of law, thereby preserving about $400 million of annual revenue. These limited changes are consistent with the executive budget’s expectation of negligible revenue growth in the next year. As a result of low expected revenue growth, the budget takes steps to restrain spending in key policy areas, especially school aid and Medicaid.

Policy Recommendations

The legislature can reject proposed spending cuts while deepening investment to make the state more affordable by enacting the following tax policy measures:

• Rationalize the Personal Income Tax Brackets: Reform the top personal income tax brackets by applying the current highest tax rate of 10.9 percent to all millionaire-earners (single filers earning over $1 million and married filers earning over $2 million); increase the tax rates for multi-millionaire-earners; add a new 8.85 percent bracket for top earners below the million-dollar threshold ($500,000 for single filers; $750,000 for joint filers). This change would raise over $4 billion annually.
• Tax Capital Gains: Offset the federal tax benefit for long-term capital gains and qualified dividends by creating a progressive capital gains surtax for high-income filers. This change would create an additional 2 percent capital gains tax for all filers with incomes over $500,000 and an additional 4 percent capital gains tax for filers with incomes over $1 million. This change would raise $3.5 billion annually.
• Reform Corporate & Business Taxes: Raise the corporate tax rate in light of the dramatic 2017 corporate tax break; enact measures to combat multinational corporate tax avoidance, either by including global intangible low-taxed income (GILTI) in the state corporate tax base or by requiring worldwide combined reporting for corporations; tax the profits of high-earning pass-through businesses that are exempt from the corporate tax. These changes would raise $5 to $7 billion annually.
• Enhance the Child Tax Credit: Enact changes (such as those in the “Working Families Tax Credit” proposal) that would improve the State’s current tax credit programs (the Earned Income Tax Credit and the Empire State Child Credit). Sound changes to the program would increase the total credit amount for each child for the neediest families, eliminate phase-ins that prevent the poorest families from receiving any benefit, and make the credit available to immigrants who file based on an Individual Taxpayer Identification Number.

Home Care

In an effort to restrain Medicaid spending, the executive budget targets the consumer directed personal assistance program (CDPAP), a popular program that allows Medicaid beneficiaries to coordinate their own home care, including from family caregivers. The executive budget would cut the program’s costs to the State by $600 million per year. A proposed reduction of caregivers’ total hourly compensation by $2.54, or 12 percent, would cut program costs by an estimated $400 million per year. Further, the budget proposes a series of reforms that would restrict program usage, including limiting hours, and restricting Medicaid beneficiaries whose care is coordinated by designated representatives. These changes would cut CDPAP costs by an estimated $200 million annually. Due to the federal Medicaid funding match, this $600 million annual cut in State home care funding would result in a $1.2 billion annual cut in total home care funding.

Financially Distressed Hospitals

In the aftermath of Covid, hospitals across the state have faced mounting financial need. The State estimates that 30 percent of New York hospitals are financially distressed, with hospitals serving primarily Medicaid and uninsured populations facing greater strain. While the State has provided support to financially distressed hospitals in recent years, the fiscal year 2025 budget is set to provide less funding. This funding reduction occurs despite the budget showing these hospitals’ unmet need continuing to rise. Further, the executive budget pursues a “transformation plan” for SUNY Downstate (a public hospital in Brooklyn) that appears to effectively close the hospital.

Policy Recommendations

While Medicaid costs have grown sharply in recent years, cutting home care worker wages and restricting access to care is an ill-advised cost saving strategy. A more efficient and equitable approach would be to eliminate Managed Long-Term Care (MLTC) plans — a program that contracts with costly private organizations to coordinate long-term care for Medicaid beneficiaries.

Further, rather than allow hospitals serving primarily low-income populations to teeter on the brink of closure and pursue ad-hoc bailouts or mergers, the State should develop a comprehensive plan for ensuring adequate statewide hospital coverage while allocating sufficient resources for safety net hospitals.

• Reject Wage Cuts to Home Care Workers: Reject the executive budget’s proposed cuts of $300 million in fiscal year 2025 and $600 million per year thereafter.
• Fund Financially Distressed Hospitals: Direct $1.5 billion in targeted funding to hospitals serving primarily Medicaid-covered and uninsured patients; invest adequately to prevent the closure of SUNY Downstate Medical Center; raise the Medicaid reimbursement rate.
• Invest in the Healthcare Workforce: Invest in rebuilding the state’s healthcare workforce, which has seen high attrition during and after the Covid pandemic; ensure safe staffing levels at hospitals statewide.
• Expand the Essential Plan: Use $1 billion in surplus federal funding to expand the Essential Plan to cover 150,000 undocumented immigrants (as well as providing ACA marketplace subsidies).

New York faces an acute housing crisis, as rapidly rising costs and inadequate supply make housing increasingly unaffordable for New Yorkers across the state. The State’s lack of affordability has contributed to its nation-leading out-migration and population loss. While last year’s executive budget proposed an ambitious, though incomplete, suite of policies to tackle the housing crisis, the fiscal year 2025 executive budget puts forward a far narrower set of proposals. This year’s proposals include a pair of tax incentives for housing development in New York City and modest regulatory changes and executive actions. As such, the proposals largely represent a continuation of the State’s existing housing policy, which produced too little housing through overly costly tax incentives.

Policy Recommendations

An ambitious social housing policy that rises to the scale of the state’s housing shortage would 1) increase housing production, 2) protect tenants from displacement, and 3) create units with below-market rents. The first two goals could be accomplished by policies proposed last year that would have loosened local land use regulations and protected tenants from exorbitant rent increases. Enacting these policies, however, would not have ensured a supply of units with below-market rents. This key complementary policy could be achieved with the creation of a social housing authority.

• Reform Land Use: Unlike last year, comprehensive changes to local land use appear unlikely to be enacted in the fiscal year 2025 budget. Nevertheless, proposed legislation to streamline permitting for affordable housing, allow religious institutions to create housing on their land, and require the public reporting of statewide housing data would represent progress toward easing restrictive local land use regulations.
• Invest in Social Housing: Commit up to $5 billion in capital funding to an authority in order create social housing, building on the executive budget’s proposal to build new housing on state-owned land.
• Impose Tenant Protections: Protect tenants of unregulated rental units from unwarranted evictions and excessive rent increases.

In 2019, New York passed an ambitious set of targets to generate renewable electricity and reduce carbon emissions. While the State has made modest progress toward meeting these goals in recent years, including beginning the development of offshore wind resources and the design of a cap-and-investment program, it risks missing its 2030 emissions target. This risk is compounded by two major fiscal issues: 1) the financial jeopardy facing the State’s offshore developments, which are central to its renewable energy generation plans, and 2) the fact that if funded solely by utility ratepayers, the cost of the climate transition could fall disproportionately on low- and middle-income households.

Despite these risks, the fiscal year 2025 executive budget takes only modest steps to further climate goals. Notably, the budget proposes changes to regulations around the construction of new gas hookups that would accelerate the transition away from fossil fuel infrastructure. This policy proposal is closely related to the NY HEAT Act, but so far has omitted affordability requirements that the NY HEAT Act included to protect the wallets of New York residents. Further, the State is slow-walking the issuance of its $4.3 billion environmental bond and has not appropriated additional funding for the climate transition.

Policy Recommendations

The State should redress these shortcomings by implementing an effective cap-and-invest program, as detailed in the FPI Budget Briefing, and by committing additional funding beyond that program to ensure the State meets its decarbonization targets. Without public funding for the climate transition, the State’s pursuit of its climate goals will increase energy costs for working New Yorkers.

• Invest in the Renewable Energy Transition: Appropriate $2-3 billion in capital funding to support greater deployment of renewable energy resources, building electrification programs, and investments in transmission infrastructure.
• Adopt the Affordability Requirements of the NY Heat Act: The executive budget includes portions of the NY HEAT Act, including elimination of the “100-foot rule,” which ends the law stating that gas companies must extend new lines to all requesting customers and must spread the cost of the first 100 feet of the new hook-up across all ratepayers. This change will accelerate the transition away from fossil fuel infrastructure. However, the budget excludes provisions that would shelter low-income households from the effects of the transition by capping utility payments at 6 percent of household income. These provisions should be included.

New York’s workforce has shrunk since the start of the Covid-19 pandemic, especially relative to the U.S. as a whole. With the exception of a handful of counties, most notably Brooklyn (Kings County) and Queens, almost every county in the state has seen a declining workforce. The absence of a robust workforce, particularly in public services such as health, education, and public administration, will undermine New York’s long-term economic growth and competitiveness.

Between 2018 and 2022, the number of hospital workers in the state fell by almost 30,000 — from nearly 465,000 to less than 435,000 — a change of almost 6.5 percent. The education workforce and the public administration workforce saw net declines of 20,000 and 30,000 workers, respectively, from 2019 to 2023, reflecting the weakened state of New York’s public sector. Between 2010 and 2023, the number of staff in New York charged with tax audit and compliance dropped by 42.4 percent, undermining State revenue.

Policy Recommendations

• Improve Public Sector Pensions and Benefits: Improve benefits for public sector employees to increase retention and recruitment in the public sector.
• Invest in Health and Human Services Workers: Implement policies designed to recruit and retain healthcare staff at hospitals in compliance with the 2021 Safe Staffing law that was intended to ensure safe and decent job conditions. The State can further leverage $694 million in funding for the healthcare workforce as part of the recently approved 1115 Medicaid waiver. Additionally, a cost-of-living adjustment (COLA) for human services workers is necessary to bolster this workforce in the face of a mental health and substance misuse crisis.
• Invest in State Tax and Labor Enforcement: Increase funding for civil services positions such as tax auditors and labor enforcement staff that protect State revenue and workers’ rights.