Monday Morning Memo – April 6

Good morning from home…

In the midst of this pandemic and quarantine and self-isolating, New York State enacted a $177 billion fiscal year 2020-2021 budget earlier this week.

Nothing about the budget process was typical. The Senate and Assembly usually release their own versions of the budget in mid-March; these “one-house” budgets are primarily political documents—expressing the sense of the majority conferences—that signal priorities and serve as jumping off points for negotiations with the Executive and with the other house. These were omitted this year.

Budget negotiations in Albany always occur behind closed doors but strategic leaks, party conferences, and legislators’ give and take with lobbyists and advocates means that information seeps out from behind the locked doors. This year, budget negotiations rivaled a papal conclave with printing by bill drafting replacing the white smoke. Rank and file legislators, always a step removed from negotiations by their leaders, were—to use a budget term—intentionally omitted.

In fact, many lawmakers did not even enter the Senate or Assembly chambers to cast their votes, as rules were changed to allow them to vote from their offices. The Senate passed the budget bills on Thursday and the Assembly followed suit on Friday, following hours of debate that dragged on until early in the morning as Assembly Republicans continued to assert their Constitutional prerogative by raising questions about budget bills that, as usual, were destined to pass overwhelmingly.

Nevertheless, O’Donnell & Associates would like to thank our friends and colleagues in the Legislature and Executive—members, leadership, commissioners, and staff—who worked with us during this process, providing information, counsel, and fighting with us for our clients. No one is particularly happy with the results but, without their help and support, it would likely have been worse.

Of course, in this year and these times, the budget agreement is only the beginning.  Built into the budget itself is an adjustment mechanism that gives the Budget Director incredible powers to alter allocations throughout the year, depending on the actual revenue the state receives. The first look-back period occurs between April 1 and April 30, after which the Executive can propose unilateral cuts as the full impact of the coronavirus—now estimated at a loss of between $10 and $15 billion—becomes more clear. The other “measurement periods” occur from May 1 to June 30, and July 1 to Dec. 31. If the budget is unbalanced during any of these periods, any appropriation can be “adjusted or reduced”. The Legislature will have a limited period of time to offer counterproposals, but the Governor has the full authority to make these funding cuts. 

Once there was an agreement to allow the Governor to modify the budget during the year, most other cuts were “off the table” for this budget. Still, Cuomo insisted on Medicaid cuts and the recommendations of the MRT II. Despite pushback from providers and advocates, the final spending measure included many of these recommendations. Cuts include $400 million in reduced payments to hospitals, tighter eligibility rules for certain long-term care benefits and shifting control of who can qualify for care from municipalities to an outside company hired by the state. Advocates and some left-leaning lawmakers strongly opposed the restructuring.

The budget rolls back some of last year’s bail reform laws, which eliminated bail and remand for almost all misdemeanors and nonviolent felonies. Another major point of contention, especially with State Assembly Members, the list of crimes subject to bail or pretrial detention will be increased. While most bills that make up the budget this year passed on a party-line vote or close to it, the Assembly bill that contained the changes to bail law passed 76-66, just one vote over the necessary 75-vote majority, showing just how many members opposed these changes.

Governor Cuomo also managed to include in the budget a measure to increase ballot requirements for third parties as part of a system created by the Public Financing Commission. The system includes a progressive matching funds structure in which donations of $250 or less to a state-level political candidate are matched with public funds at a 6-to-1 rate and excludes all donations that exceed the match limit from qualifying for any matching funds.  The move was decried by a number of third parties, including the Working Families Party. 

Environmentalists were pleased with the final package. The state’s $300 million Environmental Protection Fund remained intact as well as the Governor’s proposed $3 billion Restoring Mother Nature Bond Act. This legislation, if passed by voters in November, would fund a number of wetland restorations and flood prevention projects, establish and streamline a new siting system for solar and wind plants, and put NYSERDA in charge of finding suitable sites for energy projects.

The budget enactment also realized one of Cuomo’s long-sought pet projects: the addition of the national motto “E Pluribus Unum” to the state’s coat of arms, the first change to the seal in more than a century. 

Governor Cuomo said both that this was “a difficult budget” and “the easiest budget”—because the State has no money. New York is counting on the federal government, more than ever, for funding in the fourth federal stimulus package already under way in Washington.

We will have more updates on Washington and the next stimulus bill over the next couple of weeks as it develops.

This Coronavirus Tax Policy Idea Wasn’t on the Table, Then Famous Chefs Called the President

Daniel Boulud’s restaurants are largely shuttered because of the coronavirus pandemic, but his latest recipe—an easy-to-grasp pitch paired with a dash of celebrity—put a dormant tax-policy idea at the forefront of President Trump’s mind. Three times this week, Mr. Trump called for expanding tax deductions for business meals and entertainment as a way to revive the hard-hit restaurant industry after stay-at- home orders are lifted. [Read more.]