On Wednesday, America entered a new era as Joe Biden was sworn in as president and Democrats took full control of Congress. In New York, where the economy remains in tatters from COVID-19, the stakes are especially high.
For four years, Donald Trump and a Republican-controlled Senate have been relentlessly hostile to the interests of Democrat-run states, repeatedly refusing to provide aid to local governments bleeding revenue from pandemic-induced shutdowns.
Now, one of New York’s own, Chuck Schumer, is the Senate majority leader, and Democrats control the Senate by just a single vote. Though their majority is incredibly narrow, Democrats will be able to advance their priorities through a process known as budget reconciliation, potentially allowing billions to flow to New York.
“No locality had a greater stake in the outcome of the Georgia elections than New York,” said Congressman Ritchie Torres, a Bronx Democrat who took office this month. “America’s largest city is in danger of becoming a shadow of its former self.”
Last week, Biden announced a $1.9 trillion rescue package for the United States, following the $900 billion relief legislation Congress passed in December. Biden’s stimulus would have to clear the new Congress and would include, unlike deals reached under Trump, $350 billion in emergency funding for states and local governments.
On Sunday, Schumer said more than $50 billion of that money would come directly to New York, taking the form of enhanced unemployment benefits, aid for small businesses and vaccines, and cash for the reeling MTA. The aid, Schumer said, would also include funds for state and local governments.
But many details remain to be sorted out. There are budget needs for New York State and for New York City, and debate over how much should be funneled to each. Good news of late has emerged for the state as a whole: the deficit for this outgoing fiscal year is half of what it was projected to be—$4 billion instead of $8 billion—thanks to unexpectedly high tax returns, and the federal aid Congress sent to New York in December. Several billion went to K-12 schools statewide and the MTA.
The state, however, will need more federal money than whatever it might take to cover a one-year budget deficit because the economic effects of the pandemic, including reduced tourism and a crushed restaurant industry, could linger for years. Deficits can keep growing.
Timing will matter too. The longer Congress waits, the worse the economic pain for New York could be. The second impeachment trial of Trump, stemming from the mob riots at the Capitol, could theoretically delay debate and passage of the Biden stimulus package.
A spokesman for Cuomo’s budget division, Freeman Klopott, pointed to a joint December letter sent by Cuomo, Mayor Bill de Blasio, and leaders of both the State Senate and Assembly to Schumer, Senator Kirsten Gillibrand, and the rest of the state’s House delegation. The letter called for a minimum of $15 billion in aid for New York State and $9 billion for New York City.
“This is no time to be imposing more burdens on hard-working New York families, nor is this the time to lay off essential workers, moments before we undertake a complicated and labor-intensive vaccination program,” the Democrats wrote.
On Tuesday, in his budget address, Cuomo repeated this message, presenting two budgets for New York: one with $15 billion in federal aid and one with significantly less. The governor even raised the possibility of suing the federal government.
“New York paid a bill for COVID that no state in the nation paid for, and it’s not even close,” he said. Around 41,000 New Yorkers have died from the virus, more than any other state.
Since the details on the federal aid remain hazy, Cuomo is not counting on Schumer’s $50 billion declaration as enough to cover the $15 billion the state needs, since Schumer’s announcement included other benefits, like additional unemployment money. At this point, it is entirely unclear how much of the federal money will be able to be used to plug holes in the state budget directly and, in turn, what amount would flow to the various local governments across the state facing their own deficits.
Neither of Cuomo’s budget scenarios assumed the repeal of the $10,000 cap put on federal deductions for state and local taxes. The SALT cap, passed in 2017 as part of President Trump’s tax cut legislation, infuriated governors in high-tax states like New York. Cuomo claimed it has cost the state $30 billion since it was enacted. Both Schumer and House Speaker Nancy Pelosi have vowed to repeal the cap, but the politics of it remain complex and there is no guarantee it would happen quickly.
Last week, when announcing a preliminary budget that was $5 billion smaller than one floated two months earlier, de Blasio revealed that the city’s property tax revenues were projected to drop by $2.5 billion, a large decrease driven by the coronavirus’s impact on the values of hotels and office properties.
The city unemployment rate is hovering above 10 percent and could be twice as high, according to James Parrott, the director of economic and fiscal policies at the Center for New York City Affairs at the New School. Since such a high percentage of the city’s jobs were concentrated in industries ruined by the pandemic—hospitality, tourism, and restaurants in particular—high unemployment could linger for several years.
“The distance between New York and other states in terms of job losses has widened a lot,” Parrott said. “New York City has been slower to recover than other parts of the country.”
New Yorker and new Senate Majority Leader Chuck Schumer, Massachusetts Senator Elizabeth Warren, and Vermont Senator Bernie Sanders greet each other at the Inauguration of President Joe Biden and Vice President Kamala Harris on Wednesday. Shutterstock
A second logistical challenge will come in how the federal aid is allocated and who controls where it goes. De Blasio, like other mayors across the country, wants to ensure the city can receive the aid directly and decide how it will shore up the municipal budget.
If that doesn’t happen, Cuomo would control how much of the $50 billion or more New York City receives. For de Blasio and local Democrats worried about the governor’s intermittent hostility to New York City, this could mean a smaller share of the aid than they believe the city deserves.
“The new Biden proposal has $350 billion in state and local aid. At this point, the direct nature of the funds is almost more important than the number,” said Bill Neidhardt, a de Blasio spokesman. “We need to have the funding come directly from Congress to the city, not put through the state first.”
When pressed, Neidhardt would not give an exact figure on what de Blasio was seeking from the federal government. “We have balanced our budget. So it’s really more like: The more we get, the more we can expand our budget,” he said.
Another looming question over the nature of the federal aid is how it will address budget gaps that are projected to grow in subsequent years. Progressives in the state legislature believe raising income taxes on millionaires and billionaires, as well as instituting new wealth taxes, should create the recurring revenue needed to fill future holes. After spending much of last year dismissing the idea, Cuomo said he would move forward with the plan to tax millionaires—but only if the state did not receive the full $15 billion from the federal government.
Corey Johnson, the City Council speaker, said he hoped Biden and the new Democratic Congress viewed bailout funds over a longer “time horizon” so deficits in the coming years can be combated. He is also pushing Schumer and Gillibrand for a special tranche of funding to help the thousands of New Yorkers who could be evicted from their homes when a statewide eviction moratorium expires in May.
“I think you need to go big or go home,” Johnson said, speaking of the Biden stimulus package. “My hope is the Democrats in the House and the Senate and folks in the Biden administration making decisions look over a longer time horizon and go bigger than usual to make sure we don’t get held up by Republicans at the end of this year and we don’t get caught in that dangerous game of chicken.”
Shadowing the negotiations over the new stimulus package is the last economic crisis, in 2008. Back then, President Barack Obama and the Democrat-controlled Congress authorized stimulus spending just under $1 trillion, which is already smaller than the money pumped into the economy under Trump. Many economists, particularly those on the left, argued the Obama-era stimulus was too limited in scope to forestall years of budget cuts on the local level.
In essence, no stimulus could be too large for New York City, where capital needs for public housing are as high as $40 billion and the MTA is facing long-term structural challenges. Torres, a former city councilman, argued “there’s no real ceiling” for what the city needs to recover and eventually thrive.
“We should be investing in both COVID relief and infrastructure,” Torres said. “New York City should get a disproportionate share of both.”