2018 New York State Budget Revealed: What It Means For NYC

ALBANY, NY — Gov. Andrew Cuomo unveiled a $168 billion budget on Tuesday that aims to "thwart" what he called the "economic missile" that a federal tax overhaul has sent toward New York.

The plan includes a major restructuring of the state tax code to get around new limits on deductions for state and local taxes. Cuomo also proposed initiatives to close a $4 billion deficit that emerged before Republican President Donald Trump signed the tax bill in December.

Cuomo, a Democrat and rumored 2020 presidential hopeful, wants to convert most of the state's income tax system to a payroll tax system that taxes the wages companies pay employees rather than those employees' income.

That would mean anyone earning wages or a salary wouldn't pay a state income tax, allowing them to circumvent restrictions on the so-called SALT deduction that New York lawmakers have decried.

"Washington hit a button and launched an economic missile, and it says ‘New York’ on it, and it’s headed our way," Cuomo told state lawmakers during his annual budget presentation in Albany. "You know what my recommendation is? Get out of the way before it lands."

If the state Legislature approves them, Cuomo's tax proposals would impact virtually every New York City taxpayer, bringing even more changes to a revised tax system that they're only just beginning to navigate.

But other pieces of the governor's budget would also have a big effect on the city — namely his congestion pricing proposal to toll cars entering Manhattan's central businesss district.

Cuomo's "FixNYC" advisory committee won't publish a full plan until the end of this week. But the governor hinted that it would not toll drivers to cross the free bridges over the East River, a hallmark of past congestion pricing proposals.

Here's a look at the tax plan, congestion pricing and two other pieces of the state budget that have the most implications for New York City.

Tax Restructuring

Changes to the federal tax law cap personal deductions for state and local income, property and sales taxes at $10,000. That provision will be deliterious to New York, state officials and experts say, where property and income taxes are among the highest in the nation.

To help taxpayers get around that, Cuomo wants to make employers pay state taxes on wages rather than tax individuals on the money they earn. Because companies would be paying the state tax, they could still deduct the full amount from their federal return.

Workers, then, would take home the same amount of money, but none of it would be taxed twice because they wouldn't technically pay a state tax.

"This shift, while dramatic, would in many ways thwart what the federal government was trying to do on loss of deductibility," Cuomo said.

The change would only apply to wages, not investments or any kind of unearned income, Cuomo said. The state would still have to operate an income tax system to ensure the state collects revenue on that money, he said.

Cuomo left open the possbility that the changes could apply to New York City's local income tax. In theory, it would mean New Yorkers get to keep more money than they would under the new tax law. But making the changes happen is an enormous, unprecedented task.

"It's an interesting thought experiment, but it's very difficult to put that into actual practice," Nicole Kaeding of the Tax Foundation, a Washington-based think tank, told The New York Times earlier this month.

Congestion Pricing

Cuomo first embraced congestion pricing last summer, at the peak of a crisis in the New York City subway system. The idea is to charge cars to enter the most crowded parts of Manhattan and feed the toll revenue to the Metropolitan Transportation Authority to fund desperately needed subway repairs.

The FixNYC panel will unveil a full proposal later this week. But Cuomo said it will not toll drivers just to cross the free East River bridges, such as the Brooklyn, Manhattan and Williamsburg Bridges. That was a hallmark of a decade-old plan pushed by then-Mayor Michael Bloomberg, which eventually died in the Legislature.

Cuomo instead wants to create a toll boundary on Manhattan streets that detects when cars cross it and bills the driver, similar to the cashless toll system now operating on several outer-borough bridges.

"The technology exists. We have to define the zone," Cuomo said Tuesday. "We have to determine the fees. We have to determine the hours. And it’s literally an ongoing spectrum of options."

Mayor Bill de Blasio opposes congestion pricing and instead wants to raise city income taxes on the richest New Yorkers to fund subway fixes.

Cuomo's budget also includes $428 million for MTA Chairman Joe Lhota's $836 million emergency plan to stabilize the subway system. De Blasio has resisted Cuomo's calls to fund the other half, saying the governor should pay for the rest with money he siphoned from the MTA budget into the state's general fund.

Criminal Justice Reform

Cuomo's budget includes legislation that would end the practice of setting cash bail for most criminal defendants, require prosecutors to share evidence with defense lawyers more quickly and speed up the criminal court system.

The governor promised these initiatives, long supported by criminal justice reform advocates, in his State of the State address two weeks ago. Under Cuomo's plans, New Yorkers charged with misdemeanors and nonviolent felonies could be released without having to pay any bail. Only those who could flee or pose a further danger would be jailed while awaiting trial.

The governor also wants to require prosecutors to give defense lawyers evidence they plan to use at trial before the trial actually begins.

Another proposal would change court practices to help trials move along more quickly. This could help assuage a notorious backlog in the Bronx, which caused Kalief Browder to stay on Rikers Island for nearly three years on charges that were eventually dismissed.

Some city lawmakers praised Cuomo's proposed reforms.

"These are smart and sensible policies that will improve our state for all New Yorkers," said City Councilman Rory Lancman (D-Queens), chair of the Council's Committee on the Justice System.

School Funding

Cuomo's budget includes $26.3 billion in statewide education aid. That's a $769 million increase from the current year — a smaller hike than recent years, but one that would mean the state gives 35 percent more money to schools than it did in 2012, Cuomo said.

That increase includes $338 million in foundation aid, money that aims to rectify decades-old funding inequities between the richest and poorest school districts.

The foundation aid program came out of a 2006 court decision that found the state had long underfunded New York City schools. Under then-Gov. Eliot Spitzer, the state was supposed to increase school aid by $7 billion for four years, $3.8 billion of which was supposed to go to New York City schools annually.

But the state cut back following Spitzer's resignation and the 2008 financial crisis. Advocates estimate the state still owes $4.3 billion in foundation aid to school districts across the state.

Cuomo says 70 percent of this year's school funding increase will go to the state's neediest school districts. But state Assemblyman Charles Barron (D-East New York) interrupted his speech on Tuesday, saying the city's neediest schools are still struggling.

"You’ve got to pay the $4.2 billion in the debt that’s owed to our poorest black and brown neighborhoods," Barron shouted.

Cuomo also proposed a $15 million increase in state spending for pre-kindergarten programs, particularly in the neediest school districts. The state's efforts complement de Blasio's efforts to provide free pre-school for every 3- and 4-year-old in New York City.

(Lead image: Gov. Andrew Cuomo delivers his annual state budget address Tuesday in Albany. Photo from Gov. Andrew Cuomo's office via Flickr)