Federal Covid Cash Kept New York State Afloat. That Could End Soon. – The New York Times


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An influx of federal funds may have saved the M.T.A. and staved off painful budget cuts in Albany and New York City. There’s a fight over what comes next.

Year after year, no matter the president or the strength of the economy, New York’s fiscal relationship with Washington almost always follows the same pattern: The state gives more to the federal government — sometimes billions more — than it gets back in federal spending.
That imbalance has long been denounced by New York’s political leaders, who argue that a few big “donor” states like theirs are unfairly subsidizing 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 call attention to a disparity that persisted well past his death in 2003.
But in 2020, as the coronavirus pandemic took the lives of thousands of people here and decimated the state’s economy, something remarkable happened. For the first time in decades, New York found itself a net beneficiary of the federal government, thanks in large part to a gusher of relief funds from Washington.
For every dollar that New Yorkers contributed to the U.S. Treasury in taxes during the 2020 fiscal year, the state got back $1.59, New York’s comptroller found in a recent study, a sharp increase from the 91 cents that trickled back the year before. The trend is expected to continue for 2021 and possibly 2022, before tapering off 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 largess. State budgets across the country have been fortified by the trillions of dollars of enhanced unemployment benefits, aid to small businesses and hospitals, and direct grants to state and local governments at a time when most have struggled to stay solvent.
All 50 states had a favorable balance of payments with Washington in 2020, most of them larger than New York’s, according to the New York State comptroller study and another by the Rockefeller Institute for Government.
But nowhere have the extremes been quite so striking as in New York, home to the country’s third largest economy, the earliest spike of Covid deaths in the United States and frequently, the largest donor state to the federal government thanks largely to its sizable tax base.
By some estimates, more than $270 billion has moved from Washington to New York through a series of pandemic relief and stimulus bills since the pandemic began. The money has flooded balance sheets in Albany, New York City and at the Metropolitan Transportation Authority, erasing deficits and ending talk — for now — of the kind of painful budget cuts that once looked inevitable.
“It enabled us not only to overcome Covid, but to get out of the ditch and begin to move forward again,” said Senator Chuck Schumer, Democrat of New York and the Senate majority leader, who helped steer round after round of funding toward his home state.
It was not long ago that Democratic leaders in charge of New York City and state were practically begging for federal assistance, as the governor reluctantly weighed new tax levies and budget cuts to narrow a state deficit once estimated at $15 billion, and former Mayor Bill de Blasio asked Albany for the authority to borrow as much as $5 billion.
How exactly New York takes advantage of its newfound solvency — and how long it lasts — remains an open question.
Budget analysts are already sounding alarms that policymakers, particularly progressive Democrats, are pushing to use the windfall to launch ambitious new social programs that the state or city may not be able to afford once the money inevitably dries up.
Richard Ravitch, the former state official who helped mastermind the rescue of New York City’s finances in the 1970s, said in an interview that he feared New York could face a fiscal cliff if policymakers convince themselves that the federal “fairy godmother” will descend again to refill their coffers.
“All I know is that when the federal money runs out, it is highly likely that the state and the city are going to face budget crises of significant proportion,” Mr. Ravitch said. “It’s just in the nature of politicians in a democracy to want to spend the money you’ve got because there are so many seeking it for one thing or another.”
Gov. Kathy Hochul, a Democrat, appeared to be guarding against just that outcome when she proposed her $216 billion budget in January. The proposal was the largest in the state’s history and called for spending billions of dollars to reward and retain health care workers and teachers.
But Ms. Hochul mostly structured those and other costly pandemic-related outlays as one-time expenses, rather than recurring liabilities, and she proposed putting 15 percent of the state’s operating expenses into reserve, a strategy that she projected 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, like raising the $10,000 cap on state and local tax deductions in 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. Both the Senate and Assembly Democrats have proposed even larger budgets that include expansions of state-funded child care or the state’s public universities, long-held goals that they believe would significantly improve the lives of New Yorkers but will also create new financial liabilities year after year.
“I am glad that we are putting money into our reserve fund at higher levels than we have in my time in Albany,” said Liz Krueger, a Manhattan Democrat who chairs the State Senate’s Finance Committee. “But I also believe this is the time to make transformative investments in the future of our state.”
A similar dynamic appears poised to play out in New York City. After years of rising expenditures under his predecessor, Mayor Eric Adams’s initial $98.5 billion budget proposal called for cutting costs by 3 percent at many city agencies, and allowing for thousands of positions to go unfilled to save money and set some aside for future years. But he faces a more liberal City Council; members of its progressive caucus recently slammed the mayor’s proposal as an “austerity budget.”
Perhaps nowhere has the impact of the federal aid been starker than at the M.T.A., which saw ridership on New York City’s subways and commuter rail lines plummet, starving it of operating revenue.
Since 2020, Congress has helped steer around $15 billion to the authority, which projects the money can help make up for lost farebox revenue and other expected shortfalls through 2025. The windfall has helped the agency stave off an immediate catastrophe, but also leaves the potential for a fiscal crisis in the years ahead.
While other states have benefited from the recent influx of federal funds, there are also indications that New York has fared better than it might have otherwise given the seniority of its representatives in Washington — particularly Mr. Schumer.
The senator said in an interview that he had used his leverage across a series of coronavirus relief bills, a $1 trillion infrastructure bill signed last year, and other spending bills to increase federal funding for transit, education, nonprofits and performing arts venues in New York. At one point, Mr. Schumer held up the passage of a $2.2 trillion relief package in March 2020 until Republicans agreed to add more money for hospitals on the front lines of fighting 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 they were in power; Republican leaders argued that doing so would be an unnecessary handout to blue states. More than $12 billion went directly to the New York State government, more than $6 billion to New York City and more to other cities and towns across the state.
“There’s a time for partisan politics. Then there’s a time to set it aside and look at the benefits,” said former Senator Alfonse M. D’Amato, a three-term Republican whom Mr. Schumer defeated in 1998. “We have benefited by his position of leadership: the state and the taxpayers.”
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