Virus-Related Revenue Loss Complicates New York Budget Deal (1)

New York state leaders agreed on a multibillion-dollar budget Wednesday as they struggled with revenue uncertainty and rising costs associated with fighting the coronavirus pandemic.

Gov. Andrew Cuomo (D) announced he had reached “conceptual agreement” with Senate Majority Leader Andrea Stewart-Cousins (D) and Assembly Speaker Carl Heastie (D) on the state’s spending plan for fiscal 2021, which began at midnight. Final details of the agreement weren’t immediately released.

The deal, albeit a day late, would allow the state to adjust its spending throughout the year to cope with reduced cash flow.

It also would ban foam packaging materials and single-use food and beverage containers starting Jan. 1, 2022, and would place a $3 billion Environmental Bond Act question on the Nov. 3 ballot. If approved, the bond would allocate funding for a number of projects, including habitat restoration, flood reduction, environmental justice communities, preservation, expanding renewable energy, and water quality improvements.

Cuomo described the deal as a “robust budget,” filled with reforms.

“With everything going on, we did not scale back our efforts or our ambitions to advance this state to greater heights,” Cuomo said at a virus-related briefing Wednesday. “And you look at this budget, you would never know that anything else was going on.”

Plans to legalize and tax recreational marijuana, as well as address gig worker rights, fell aside, as lawmakers focused on the health crisis. The number of positive coronavirus cases in the state on Wednesday had reached 83,712, with 1,941deaths, Cuomo said.

The Assembly and state Senate have been voting on budget bills as they became available, and were on track to continue the piecemeal process on Thursday. The measures then go to Cuomo’s desk for his consideration.

Revenues Elusive

State revenue expectations are largely a mystery because of the rising costs to combat the virus, the stalled economy, and unclear federal aid projections. The state budget office is projecting a loss of roughly $10 billion, Budget Director Robert Mujica said.

Final budget language included a plan to deal with reduced revenues y giving the governor and the budget director broad powers to make changes during the fiscal year in consultation with the Legislature.

If the state budget is deemed “unbalanced,” the budget division would be required to notify the Legislature, giving it 10 days to develop a plan to balance the books. Otherwise the budget office’s reduction plan automatically would take effect.

The budget would be considered unbalanced if state operating fund tax receipts are less than 99% of the amount estimated, or if disbursements are more than 101% of what was estimated, or both, according to bill language. The state Constitution requires the Legislature and governor to pass a balanced budget.

The state will monitor the budgetand be able to tweak spending during three periods: from April 1 to April 30, May 1 to June 30, and July 1 to Dec. 31.

Additional revenue, such as federal bailout money, could be used to avoid cuts, and the budget office must consider the potential impacts of withholding aid to schools and localities, according to the bill. The budget director also will have to give legislative leaders monthly reports on money withheld and expected to be withheld.

The budget for April already is projected to be unbalanced because the state extended its personal income and corporation tax filing deadlines to July 15 from April 15, said David Friedfel, director of state studies for the Citizens Budget Commission, a nonprofit fiscal watchdog group.

Mujica said the state plans to use some reserves and allow short-term, temporary borrowingto bridge the gap resulting from the tax filing date change.

Friedfel challenged the transparency and practicality of updating the spending plan periodically. “State budget balance should not depend from the outset on making mid-year cuts—such cuts should be a last resort if revenues fall short of current projections based on today’s circumstances,” he said.

Food Containers, Fracking Ban

Other policy decisions in the final budget agreement included:

• Banning single-use polystyrene prepared food and beverage containers, along with loose-fill foam packaging, starting Jan. 1, 2022. This includes disposable food containers distributed by restaurants, caterers, grocery stores, coffee shops, hospitals, and temporary food service establishments. The ban doesn’t include prepackaged food sealed before restaurants receive it and food service establishments, or packaging for uncooked or raw meat, fish, or eggs.
• Allocating funds through a proposed environmental bond for habitat restoration and flood reduction. The money also could be used to connect streams and waterways, right-size culverts and dams, reclaim natural floodplains, restock shellfish populations, preserve open space, conserve more forest lands and replant trees, expand renewable energy, and reduce contamination from agricultural and storm water runoff, according to the bill. The funds also would go toward environmental justice, restoring freshwater wetlands, and water-quality improvements.
• Making permanent the state’s ban on hydraulic fracturing.

Gun Limits

The deal includes a provision to ban individuals who commit a serious offense in another state from obtaining a gun license in New York.

Serious offenses include illegally carrying or using a pistol or other dangerous weapon, third-degree criminal possession of stolen property, and endangering the welfare of a child.

Union Access, Prevailing Wage

The budget deal also includes provisions that would:

• Require public employers in the state to give unions access to orientations for new employees.
• Mandate that contractors pay the prevailing wage to workers on private construction projects that are worth more than $5 million and get at least 30% of their financing from public funds, including grants, certain types of loans, and certain tax credits or other tax incentives to promote construction. Exceptions include small residential or school construction, not-for-profit projects, and brownfields rehabilitation under a state program for properties contaminated with hazardous waste.
• Require utility employees to be covered under state prevailing wage laws, including those at active major electric or steam-generating facilities, and workers at transmission or distribution facilities deemed as critical infrastructure.

Tax Policy

The state would be able to collect more in tobacco taxes, beginning Oct. 1, by changing the the way the product’s price is set for tax purposes.

It would end a system that allows distributors to use an “established” industry standard as their wholesale price, even if they actually paid a higher price to manufacturers. Cigarette tax enforcement against retail tobacco dealers also would be stepped up.

Other tax provisions included in the deal:

• Adding a Green Projects tax credit to the state’s existing Excelsior program of economic development incentives. The credit would provide up to 7.5% of wages for each net new job created, a Green Investment credit for up to 5% of qualifying new capital investments, and a research and development credit for up to eight percent of an eligible investment. Eligible activities include making products, providing supply-chain components, or developing technologies to reduce greenhouse gas emissions or support renewable energy.
• Extending the state’s $420 million annual film production tax credit program by one year, through 2025, while trimming it and setting new eligibility minimums.
• Banning businesses from selling “substantially similar” goods at higher prices based on the gender of the consumers for which they’re intended, such as razors, shaving cream, and jeans.

Election Recounts

It would require a full manual recount of all ballots, starting Jan. 1, in close elections where the margin of victory is 0.5% or less, fewer than 20 votes, or where one million or more ballots were cast and the margin of victory is less than 5,000 votes.

E-Bikes, Sports Pools

The package of legislation would require riders of electric bikes and scooters to wear helmets and let municipalities set their own rules of operation.

It also would allow sports pools to operate within a casino in wagering lounges and other areas approved by the state gaming commission.

To contact the reporters on this story: Keshia Clukey in Albany, N.Y. at kclukey@bloomberglaw.com; John Herzfeld in New York at jherzfeld@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Tina May at tmay@bloomberglaw.com; Katherine Rizzo at krizzo@bgov.com