Consequences of New York State’s 2024 Budget on New York City

New York State’s fiscal 2024 budget is a mixed bag for New York City and may signal more trouble ahead in city and state relations.

New York City is a substantial component of New York State’s economy and tax revenues. However, a shift in the Governor’s support during the 2022 election, that saw her lose backing amongst New York City suburbs, may indicate future policy challenges for the city.

The agreement reached on the 2024 state budget was a mixed bag:

• The state budget includes provisions aimed at stabilizing the Metropolitan Transportation Authority’s (MTA) finances, but the burden of funding will mostly fall on the city’s businesses through a payroll tax increase.
• While the state allocated $1 billion to support asylum seekers, Mayor Adams argues that it is not enough to cover the city’s costs for sheltering asylum seekers.
• Governor Hochul’s proposed Housing Compact to construct 800,000 housing units over the next decade was ultimately removed from the budget.

A look at some of the provisions in the state budget and what it means for New York City.

Popularity for the Governor’s Office Declined in 2022 Among Counties Surrounding New York City

In the weeks prior to the 2022 election, New York state democrats began to worry about Hochul’s eroding support. There was concern that she wouldn’t capture enough of the democratic vote in New York City to offset her opponent’s growing popularity elsewhere. With the race tighter than expected, President Biden made one of his last campaign stops in New York, a state considered solidly blue. Compared to Cuomo’s last election, Hochul won with only 3.1 million (53.2%) votes compared to her predecessor’s 3.6 million (59.6%) in 2018.

While Hochul won her race, Republicans won down ballot in critical House races that allowed the GOP to take control of the House of Representatives. Republicans picked up three House seats — including defeating the chairman of the Democratic Congressional Campaign Committee (DCCC).

Solving the MTA’s Fiscal Challenges Fell Largely on New York City

While provisions in the budget should stabilize MTA’s finances over its fiscal plan, it relies mostly on the city to fund. Despite the metropolitan commuter transportation district (MCTD) including seven counties outside of New York City, most of the MTA’s new revenues will come from increasing an existing payroll tax within the MCTD only on city businesses. The payroll tax will increase to 0.6%, raising $1.1 billion.

One positive, the Governor’s initial request that New York City come up with $500 million annually from its own budget was dropped to $165 million. This is paired with $300 million in one-time aid and $35 million to improve subway service frequency by the state. It is unclear if the state will include, or the MTA will need, continuing support from the state in subsequent years. The MTA already is the highest among transit agencies in relying on volatile farebox revenue.

Depending on how the process goes, the MTA may also see $1.5 billion in licensing fees if three downstate casino licenses are awarded, and a share of an estimated $231 to $413 million in incremental annual tax revenue from the casinos for MTA operations. In the past, new commercial casino revenue has been used for local government education aid. Other provisions include a bus free-fare pilot program lasting between 6–12 months, one in each of the five boroughs, and the MTA should not have to reduce service. The state is allocating $65 million to reduce the MTA’s proposed fare increase to 4%.

New York City Needs More Support with Asylum Seekers from Southern U.S. Border

The Mayor has been advocating for funding to deal with the influx of asylum seekers arriving in New York City for several months. To address this issue, the state budget includes $1 billion in “extraordinary funding”, which would make up one-third of the total funding provided by the state, city, and federal governments. Mayor Adams has been highlighting the significant costs of this crisis, which most recently have totaled $4.3 billion.

Despite the funding, the Mayor says it isn’t enough. The funding covers 29% of the city’s cost for sheltering the asylum seekers over this fiscal year and the next:

So because we are getting a billion, which is coming in layers from the state, do we go back and just spend wily again? No, the city must be efficient without layoffs and without cuts to services and we have to really acknowledge the turbulent forecast that’s in the future. — Mayor Adams

When the Mayor introduced the fiscal 2024 city budget, he noted the most recent set of spending reductions, which is the third one, has resulted in savings of $1.6 billion for the current fiscal year and the next. Savings were made by cutting most agency budgets by 4%, while some budgets were reduced by less. The city is calling on the federal government to help, and expects a surge of additional asylum seekers to arrive in the city after the border restrictions known as Title 42 expire with the end of the federal COVID emergency.

New York City’s Housing Affordability Crisis Unlikely to East Anytime Soon

The Governor’s executive budget proposal included a plan to construct 800,000 housing units over the next ten years that didn’t make the final cut. The Housing Compact aimed to set new construction targets for local municipalities over the next three years and had the power to override local zoning laws if the targets were not met. However, suburban lawmakers criticized the plan, and it was ultimately removed from the budget.

Read more on New York City’s housing crisis in last week’s Back of the Budget — Suburbs Over Cities: Housing Shortages Push Millennials Out.

2024 State Budget May Foreshadow Future Challenges

While the state budget has provided some relief to the MTA and asylum seeker crisis in New York City, the city still faces significant financial burdens. The state’s reliance on the city to fund the MTA and asylum seekers highlights a potentially more adverse relationship between the New York State Legislature and New York City. The Governor’s proposed Housing Compact could have addressed the city’s housing affordability crisis, but ultimately it was not included in the budget. With ongoing fiscal and social challenges, it remains to be seen how the city, and state, will navigate these issues in the future.

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