Federal Covid Cash has kept New York State afloat. It could end soon.


Year after year, regardless of the president or the strength of the economy, New York’s fiscal relationship with Washington almost always follows the same pattern: the state gives the federal government more – sometimes billions more – than it does not claw back in federal spending.

This imbalance has long been denounced by political leaders in New York, who argue that a few large “donor” states like theirs unfairly subsidize services for others. Daniel Patrick Moynihan, a New York senator for more than two decades, even began producing his own annual report in the 1970s to draw attention to a disparity that persisted long after his death in 2003.

But in 2020, as the coronavirus pandemic claimed thousands of lives here and decimated the state’s economy, something remarkable happened. For the first time in decades, New York found itself a net beneficiary from the federal government, thanks in large part to a gush of relief funds from Washington.

For every dollar New Yorkers paid to the U.S. Treasury in taxes in fiscal year 2020, the state clawed back $1.59, the New York Comptroller found in a recent study, a steep increase over to the 91 cents that had returned the previous year. The trend is expected to continue into 2021 and possibly 2022, before easing as federal spending returns to normal levels.

The effect on New York as it prepares to set its budget for the coming year has been transformative, and the state is far from alone in benefiting from two years of federal largesse. State budgets across the country have been bolstered by trillions of dollars in enhanced unemployment benefits, aid for small businesses and hospitals, and direct grants to states and local governments at a time when most are struggling. hard to stay solvent.

All 50 states had a favorable balance of payments with Washington in 2020, most larger than New York’s, according to the New York State Comptroller’s study and another from the Rockefeller Institute for Government.

But nowhere have the extremes been more stark than in New York, home to the nation’s third-largest economy, the first spike in US Covid deaths and often, the federal government’s largest donor state thanks in large part of its large tax base. .

By some estimates, more than $270 billion has flowed from Washington to New York through a series of pandemic relief and stimulus bills since the pandemic began. The money flooded the balance sheets of Albany, New York and the Metropolitan Transportation Authority, wiping out deficits and ending — for now — the kind of painful budget cuts that once seemed inevitable.

“It allowed us to not only defeat Covid, but to get out of the ditch and start moving forward again,” said Sen. Chuck Schumer, a New York Democrat and Senate Majority Leader, who has helped lead round after cycle. funding back to its home state.

Not so long ago, Democratic leaders in charge of New York City and the state were practically begging for federal help, as the governor reluctantly weighed new tax levies and budget cuts to reduce a the state’s deficit once estimated at $15 billion, and former mayor Bill de Blasio asked Albany for permission to borrow up to $5 billion.

How exactly New York benefits from its newfound solvency — and how long that lasts — remains an open question.

Budget analysts are already sounding the alarm that policymakers, especially progressive Democrats, are pushing to use the windfall to launch ambitious new social programs that the state or city might not be able to afford once. that the money will inevitably dry up.

Richard Ravitch, the former state official who helped organize the bailout of New York City’s finances in the 1970s, said in an interview that he feared New York was facing a fiscal cliff if policymakers convinced themselves that the federal “fairy godmother” would come down to filling their coffers.

“All I know is that when the federal money runs out, it’s very likely that the state and the city will face budget crises of a significant proportion,” Ravitch said. “It’s just in the nature of politicians in a democracy to want to spend the money you have because so many are looking for it for one thing or another.”

Governor Kathy Hochul, a Democrat, seemed to hedge against that outcome when she proposed her $216 billion budget in January. The proposal was the largest in state history and called for spending billions of dollars to reward and retain healthcare workers and teachers.

But Ms. Hochul has mainly structured these and other costly pandemic-related expenses as one-time expenses, rather than recurring debts, and she has proposed putting 15% of state operating expenses in reserve, a strategy that she says would help balance the budget through 2027.

In a letter accompanying the Rockefeller report, Robert Mujica, the governor’s budget director, warned that unless there is a major change in federal policy, such as raising the $10,000 cap on state and local tax deductions on federal returns, instituted in 2018, “New York will once again reclaim the dubious distinction of being the top donor state.

Ms. Hochul, a moderate facing re-election this year, is already under pressure from Democrats who control the state legislature to move toward their more expansive plans. Senate and House Democrats have proposed even bigger budgets that include expanding state-funded child care or public universities in the state, long-standing goals that them, would dramatically improve the lives of New Yorkers, but also create new financial liabilities year after year.

“I’m glad we’re putting money into our reserve fund at higher levels than we’ve had since my time in Albany,” said Liz Krueger, a Manhattan Democrat who chairs the Senate Finance Committee. of State. “But I also believe now is the time to make transformative investments in the future of our state.”

A similar dynamic appears to be playing out in New York. After years of increased spending under his predecessor, Mayor Eric Adams’ original $98.5 billion budget proposal called for a 3% cost cut across many city agencies and the ability to leave thousands of positions behind. vacancies to save money and set aside for years to come. But he faces a more liberal city council; members of his progressive caucus recently criticized the mayor’s proposal as an “austerity budget”.

Nowhere perhaps has the impact of the federal aid been more marked than at the MTA, which has seen ridership on New York City’s subways and commuter rail lines plummet, depriving it of revenue. operation.

Since 2020, Congress has helped direct about $15 billion to the authority, which expects the money to help offset lost tariff revenue and other revenue shortfalls expected through 2025. windfall helped the agency avoid immediate disaster, but also leaves the potential for a budget crisis in years to come.

While other states have benefited from the recent influx of federal funds, it also appears that New York has fared better than it otherwise might have given the seniority of its representatives in Washington — in especially Mr. Schumer.

The senator said in an interview that he used his influence on a series of coronavirus relief bills, a $1 trillion infrastructure bill signed into law last year and other government bills. spending law to increase federal funding for public transit, education, nonprofits, and the performing arts in New York City. . At one point, Mr Schumer delayed passing a $2.2 trillion relief package in March 2020 until Republicans agreed to add more money for frontline hospitals in the fight against the virus.

A year later, he led Democrats to approve hundreds of billions of dollars in direct aid to state and local governments that Republicans had refused to pass when in office; Republican leaders have argued that this would be an unnecessary aid to blue states. Over $12 billion went directly to the New York State government, over $6 billion to New York City, and even more to other cities and towns in the state.

“There is a time for partisan politics. Then it’s time to put it aside and consider the benefits,” said former Senator Alfonse M. D’Amato, a three-term Republican who Mr. Schumer defeated in 1998. its position of leadership: the State and the taxpayers.


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