Key Takeaways from the FY27 Assembly and Senate One Houses

Assembly and Senate One Houses came out late on March 9^th and were adopted March 12th. They show that this is shaping up to be a relatively calm budget cycle, at least in comparison to prior years. The One House bills are responses from the Senate and Assembly to the Proposed Executive Budget released in January and set out each House’s negotiating positions as we enter the next phase of New York’s budget process.

Similar to the Executive’s proposal, these bills include funding provisions and also allow for the Legislature to include their policy agenda items in what is known as Article VII language. Historically, however, the Assembly omits any policy provision that is not strictly budget related. Once the resolutions are released, the “three way” negotiation process kicks off between the Senate, Assembly, and the Executive in order to meet the April 1st deadline — though that deadline has been more of a let’s say suggestion, in years past.

This year’s One House bills hammered home the theme of affordability, which has dominated the recent New York political discourse after inflation and immigration enforcement dominated the 2024 election cycle. NYC Mayor Zohran Mamdani’s energetic campaign hammered home messaging about the cost of living in NYC and demonstrated its effectiveness. Some examples of this focus include the Senate’s proposal to add additional funding for expansion of universal child care programs outside of New York City and the Assembly’s proposals for sending out POWER Checks, refunds that are intended to make up for high utility costs.

One major area they differ is taxes. Governor Kathy Hochul has strongly and consistently committed to no new taxes in this year’s budget. Budget Director Blake Washington declared last Fall, “I think taxes are a last resort and at this moment in time, when we’re in a good spot financially and on good fiscal footing, that’s the last thing on my mind,” he said. As of late last week, Hochul has stood firm in her stance of resisting higher taxes, pointing to concerns that high taxes will drive high income earners out of New York State. At a press conference recently Hochul set out her position: “What I want to make sure, we are smart about is having a system in place where it’s not just taxing for the sake of taxing. I need people who are high net worth to support the generous social programs that we want to have in our state.” She continued, “I, philosophically, don’t have a problem [with raising taxes on the wealthy], but I have to look at [the] fact that I am in competition with other states who have less of a tax burden on their corporations and their individuals.”

The conversation around tax hikes for the wealthy and corporations grew louder last fall, when it became a rallying point for Zohran Mamdani’s campaign, which he has continued in his mayoralty. Mamdani recently offered, “I believe the wealthiest individuals and most profitable corporations should contribute a little more so that everyone can live lives of dignity.” Mamdani has plenty of allies in the Legislature, who have not shied away from tax hikes in the past. The most recent tax hikes were in 2021 targeting high income earners (though last year a surcharge on higher incomes was extended and not allowed to expire). As Assembly Speaker Carl Heastie bluntly put it in the Fall, “Millionaire taxes poll extremely well.”

With this in mind, the biggest changes to the Executive proposal from the Legislature came as no surprise to anyone: a tax hike for New York’s wealthiest individuals and corporations. The Senate included a 0.5% surcharge on the top two personal income tax brackets, for an estimated $1.1B in revenue. The Senate also proposed increasing Article 9-A, the top state corporate tax rate, from 7.25% to 9% for businesses and authorized an increase to NYC corporate tax for financial sector firms from 9% to 10.8% and for non-finance sectors from 8.85% to 10.62% for an estimated $1.5 billion in revenue. Senators have certainly caught on to the popularity of Mamdani’s messaging around taxes, with Senate Deputy Leader Mike Gianaris stating, “The Senate budget proposal would accomplish what is needed to carry New Yorkers through the current affordability crisis. By ensuring the wealthy pay their fair share so we can provide services like childcare and fare free buses, we are laying the blueprint to help New Yorkers remain and thrive in our state.”

The Assembly proposed a tax rate on corporations, backing a 2-point increase for businesses with at least $10 million in revenue and included another provision that specifically targeted the crypto industry, establishing the Crypto Mining Facility Excise Tax, a tiered tax ranging from $0.02 to $0.05 per kilowatt hour (kWh) on energy used to power crypto mining facilities that use at least 2.25 million kWh per year of electricity.

The Assembly is also proposing a “middle class tax cut” for New Yorkers earning below $323,200, reducing the Personal Income Tax (PIT) for certain low- and middle-income New Yorkers with at least one dependent. The Assembly proposal would eliminate the New York State PIT liability completely for taxpayers with income below the eligibility threshold, benefitting approximately 363,000 tax filers and provide $211M in tax relief. The “middle class tax cut” was paired with an increase of the PIT rate for high income earners. The Assembly proposal targets high income earners making $5M to $10M, whose tax rates would go from 10.3% to 10.5%. Those making $10M to $25M would go from 10.3% to 10.75%. Those making $25M to $100M would go from 10.9% to 11.75%. Those making above $100M would go from 10.9% to 12%. The Assembly approved a similar measure to increase Article 9-A for a rate of 9.25% for firms with an income base over $10M. Though the Senate’s proposal is supporting a bigger tax rate increase for high earners, their proposal did not include any tax cuts.

A mansion tax backed by both Houses would raise current tax rates by about 1.4 points on expensive home sales. A cut to New York City’s Pass-Through Entity Tax, which currently lets some executives use their business tax payments to fully cancel out what they owe in personal income taxes, would shrink that benefit from 100% to 75%.

The tax increases are not just a sign that legislators feel like wealthy New Yorkers and big businesses need to pay their fair share but are also seen by many New York City legislators as a lifeline for New York City, which is facing a staggering budget deficit. Mamdani recently estimated it to be $5.4B, but this past week NYC Comptroller released a report that the gap amounts to $12.6B in this fiscal year and next. Not only does that position NYC in 2008 levels of financial distress, but it also poses a threat to Mamdani’s ambitious agenda to provide more and better city services at a lower cost to New Yorkers.

In the wake of the One Houses, Mamdani said in response to the tax proposals that he was happy to see the Legislature “recognize the scale of the fiscal crisis facing New York City,” adding that the budget proposals “take meaningful steps toward closing the deficit we inherited, including by asking more from the wealthiest New Yorkers and by creating a fairer balance in the city’s fiscal relationship with the state.”

However, with a governor seeking re-election and with a historic role as a business-friendly Democrat, any tax hikes will be an uphill battle. In response to the Legislature’s proposals, Hochul referenced a special Appropriation of state aid that was announced earlier this year, “We already put $1.5 billion on the table,” Hochul said, “So we’re going to get to the right resolution and just be assured that I take nothing personal in this business.”

Speaking of funding for municipalities, the Senate’s one-house budget added $604M in Aid and Incentives for Municipalities (AIM) funding over the next two years for cities across the state (including NYC) with an addition of $125M in general assistance for the cities of Rochester, Yonkers, Syracuse and Albany, as well as $40M in “Miscellaneous Financial Assistance” (MFA) for the cities of Rochester and Yonkers; $30M in MFA for the city of Syracuse; and $15M in MFA for the City of Albany.

Noticeably there was no additional appropriation funding for the City of Buffalo, who is also experiencing a staggering budget deficit, but the Senate included a provision that would allow the City of Buffalo to impose a real estate transfer tax. Assembly Speaker Carl Heastie said he is “pushing for resolving the financial distress of cities,” and included $10M in MFA each for the Cities of Rochester and Syracuse, and $500M in AIM funding for cities, towns, and villages outside of NYC.

For additional revenue raisers, both the Assembly and Senate bills kept the proposed 75% tax on smoke-free nicotine pouches that would mirror a long-standing tax on tobacco products. The tax is expected to generate about $54M, which is intended to go toward Medicaid. The Senate also included new language to allow municipalities to assess and collect property taxes from certain businesses who operate on tax-exempt lands.

Both Houses also provided much needed but expected support for the heavily publicized partnership between Governor Hochul and Mayor Mamdani to deliver funding for universal childcare. The Senate included $34M in additional support for childcare pilot programs for children aged 0-3 in cities outside of NYC for a total of $100M. The Senate also included $73M in total to begin implementation of a contract-based childcare program for two-year-olds in New York City.

The Assembly supported the Executive’s proposed funding levels for childcare and included a $20.9M increase in three-year-old Pre-K to a minimum of $10k per pupil for districts outside of NYC. Additionally, the Assembly would expand Universal Pre-K (UPK) to support full day instruction for four-year-olds by Fall 2028 and consolidate UPK and statewide Universal Full Day Pre-K into a single program.

Both the Assembly and the Senate also rejected Hochul’s proposal to lower car insurance premiums, which she planned to do by changing New York’s comparative negligence standard to reduce fraudulent claims and staged incidents and limiting the damages for drivers found to be mostly at fault for an accident, in an attempt to crack down on fraud. The proposal has the NY Trial Lawyers Association up in arms and pointing the finger at insurance companies as responsible for fraudulent claims.

What Could Slow Things Down

Finally, as negotiations take off, the legislature and environmental advocates are bracing for Hochul to potentially push through walk backs of key provisions of the Climate Leadership and Community Protection Act (CLCPA). Passed in 2019, the law gave the state a decade to cut its emissions by 40% and planned for the state to achieve net zero by 2050, along with a strict method of counting greenhouse gas emissions.

New York has been slow to move on implementation (and is less than halfway to reaching its 2030 goals), but recent remarks and a memo from NYSERDA have raised the alarm for clean energy advocates. The memo highlighted Hochul’s affordable energy narrative, suggesting that some New York households could face $4,000 or more in increased upfront energy costs by 2031, to which she commented, “For us to meet the goals on the time frame that was set by the legislature, there’s going to be enormous costs to families. Enormous,” Hochul told reporters last week. “I just need a reality check.”

Though Hochul did not include language around changes to the CLCPA in her initial Executive Proposal, and no one has seen anything concrete, Hochul has been known to throw down the gauntlet late into budget negotiations, and Budget Director Blake Washington has hinted that Hochul is not past doing so again this go-around.

However, it is clear the Legislature will put up a strong fight when it comes to any climate roll backs. “I think our conference has been really deliberative in how to make sure that we protect our climate and we make things more affordable,” Senate Majority Leader Andrea Stewart-Cousins stated. “So, we are constantly moving towards a direction that will, you know, alleviate the pain and save the planet, and we’ll continue to do that.”

Another somewhat unforeseen hiccup that has gotten more attention in the past couple weeks relates to fixing Tier VI, a 2012 change in the pension law, which covers public employees, including teachers, who entered into the workforce post-2012. Tier VI requires public employees to work until age 63, up to 40 years, in order to retire without penalty. Public employees in Tier VI can no longer retire at age 55 with 30 years of service without significant penalties that reduce their overall pension.

Hochul appeared at a rally of public employees to announce that she is open to changing the policy, but because Tier VI required more contributions from employees and reduced the benefit levels, the pension fund’s long-term costs went down, creating some nervousness around making changes that could have an unappealing fiscal impact. However, Heastie took a stronger stance on the issue, stating to advocates at their Albany rally, “I have been one of the biggest advocates of trying to get rid of Tier VI. We started to whittle away at some of the changes, but this is the year we need to blow that away.”

Our Prediction

O’Donnell & Associates’ prediction for this year’s budget is that it will be closer to meeting the April 1 deadline than in years past. There remain some sticking points, but comparatively, this year’s budget process has been filled with fewer controversial provisions, and there is a real pressure to deliver on the State’s affordability agenda in an election year. That being said, we expect Hochul to leverage her position and throw a last-minute curve ball or two. Nonetheless, we expect “timely” or close if not quite on time.

Below, we broke down the key proposals and differences between the Assembly, Senate, and Executive in this year’s budget:

Housing

Hochul announced her “Let Them Build” agenda in the Executive Budget, which includes a series of reforms intended to speed up the development of housing and infrastructure. Her proposal included modernizing the State Environmental Quality Review Act (SEQRA), which she views as unnecessary red tape to deliver more housing and development across the state. The Senate modified the scope of Hochul’s original proposal by limiting the exemptions to only infill multifamily housing projects, particularly in urban areas, and conditioned upon the project fulfilling minimum environmental and infrastructure standards and scaling the size of developments exempted to community context. However, the Senate amendment did not include any labor standards. The Assembly omitted the SEQRA provision altogether.

The Assembly’s proposal also included capital funding investments in public housing and affordable housing across the state, including $750M for the New York City Housing Authority (NYCHA), $750M in Mitchell-Lama Preservation and $225M for public housing authorities outside of New York City. Additionally, for homeowners, the Assembly included $50M in downpayment assistance to families with between 50% and 120% of area median income.

The Assembly also included an additional $200M for the Housing Access Voucher Program (HAVP), for a total of $250M. The Senate included the same bump in HAVP funding for a total of $250M, $100M total for Mitchell-Lama Preservation, an increase to $500M total capital funding for NYCHA, and a proposal that would establish the New York First Home Savings Program to provide tax-advantaged savings accounts for first-time home buyers.

Energy and Utilities

The Governor’s Executive Budget included comprehensive reforms intended to protect utility ratepayers, which has become a popular stance amongst left of center politicians and was a large talking point in the recent New Jersey Governor’s race. Hochul’s proposals included requirements that utilities publicly disclose how CEO salaries compared to the average worker’s pay and that executive compensation will be tied directly to customer affordability. Additionally, her proposal stated that when requesting rate increases, utilities will be required to present a budget constrained option that keeps their operating and capital costs below the rate of inflation and also directed the Department of Public Service to review utility bills for hidden fees.

The Assembly omitted the Executive proposal to require utilities to submit an alternative “budget constrained” proposal. However, the Assembly proposed a new provision that would provide a one-time $2.6 billion rebate credit — Protecting Our Wallets Energy Rebate (POWER) Checks — taking a page out of Hochul’s book with last year’s Inflation Refund Checks. POWER Checks would allow eligible residential ratepayers with incomes below $150,000 to receive a credit amount of $500, and eligible residential ratepayers with incomes between $150,000 and $300,000 to receive a credit amount of $300. The Assembly proposal also included a two-year moratorium on approving new rate cases or implementing already approved rate increases that would result in an increase in electric or gas rates.

The Senate accepted most of Hochul’s proposals, but omitted the proposal to renew an assessment on gas and electric utilities. The Senate also included language to enact the Accelerate Solar for Affordable Power (ASAP) Act to direct utilities to develop flexible interconnection processes for solar panels and establish a program to expand grid capacity for distributed energy resources and re-start the NY-SUN program.

Healthcare

Much of the conversation around healthcare has been in preparation for HR1’s sweeping Medicaid cuts, which will largely go into effect after midterms. Neither One House bill proposed a solution for the hits to the Essential Plan that will kick 470,000 New Yorkers off of their health care coverage. The Trump administration is currently considering a request from New York to offset Medicaid changes made in HR1, so the Governor and the Legislature are anxiously awaiting the Administration’s decision.

The Senate added $405M for hospital investments in rate increases and quality incentive programs and added $50M for a total of $80M for FQHCs and Non-FQHC Clinics. Additionally, the Senate included a provision related to discriminatory reimbursement practices for 340B entities, and a proposal establishing a program to increase access to gender-affirming care, including medical and surgical care and therapies, equipment and supplies, and mental health treatment, which have been under threat from the Trump Administration. Both the Senate and Assembly included a Targeted Inflationary Increase of 2.3% over the Governor’s 1.7% proposal for a total of 4%.

Education

Both Houses included a proposal related to a 5-year capital plan, with the Assembly allocating $10B for a 5-year SUNY capital plan, and the Senate including $1.8B for the first year of the plan. The Assembly also included a $285M increase to Tuition Assistance Programming (TAP), which would allow for an increase in the income threshold for the maximum TAP award from $7,000 to $30,000 for students receiving aid.

The Senate language also included a provision that would make Emergency Aid grants available to students experiencing unexpected hardship. The Senate also proposed a High Impact Tutoring Pilot Program to provide grants to public and charter schools to implement this program, prioritizing low-income, underserved and rural students. Both Houses’ breakdown for school funding is below:

Labor

Both One House Budget Proposals, similar to the Executive Budget Proposal, were lighter on labor provisions. We anticipate that adding labor standards to the expedited SEQRA process proposed by Hochul (discussed above) will continue to be a fight. Hochul’s proposal included funding for Workers Comp fraud investigations for District Attorneys, intending to crack down on cases where someone might manipulate the system in their favor to reduce the benefits paid out, or to get more compensation for themselves. The Senate included $17M for Workers Comp fraud investigations by DAs, while the Assembly omitted the funding altogether. However, the Senate also proposed modified language that would target investigations on employers and cap assessments at 0.4%. This is a very popular proposal and should get done.

The Senate also directed $5.1M in grants to the Department of Labor to conduct wage theft investigations in-house, where they are currently being conducted by District Attorneys. The Assembly omitted funding for wage theft investigations altogether.

Transportation

We are coming into the final year of the five-year Department of Transportation (DOT) Capital Plan. Under that plan, the Senate proposed $250M for the Consolidated Local Street and Highway Improvement Program (CHIPS), compared to the Assembly’s $50M for CHIPS.

The Assembly proposal also delivered on one of Mamdani’s key campaign promises and included $15M for a fare-free bus program in New York City, with one fare-free bus route in each borough.

Immigration

In the wake of crackdowns on deportations and rising tensions from the presence of ICE in states across the country, there have been many members of the Legislature searching for solutions to protect New York’s immigrant population. Pieces of legislation such as the MELT Act or New York for All have risen as top priorities for many NY lawmakers, but were notably absent from the One House bills. Instead, both Houses proposed increasing the line of funding for legal resources under the State’s Office of New Americans, which is responsible for funding immigrant legal services, job readiness programs, and language access.

Both the Governor and the Legislature have indicated that conversations around immigration policy will be done outside of the budget process, particularly for New York for All, which would prohibit formal and informal collaboration between local police and federal immigration enforcement. “We are really trying to get as close as possible to New York for All,” Senate Majority Leader Andrea Stewart-Cousins told reporters last week, and the Governor separately indicated that she thinks there is not much differing opinion between the Executive Chamber and the Legislature. These negotiations are ongoing and could produce a compromise soon as all parties are looking to get this done.

Gaming

Gaming policy was largely absent from both the Assembly and Senate One Houses, but with the three new downstate casinos coming — Hard Rock Casino and Resorts World in Queens and Bally’s in the Bronx — we expect more discussions around gaming will emerge before the end of session.

The Senate included a proposed policy carried by Senator Gounardes — the “Safe by Design Act” — intended to protect minors on digital platforms, by closing a loophole exempting certain gaming platforms and requiring platforms to disable friend suggestions for minors.