Monday Morning Memo – April 3

Good morning from Albany, NY where budget negotiations continue as lawmakers attempt to come to an agreement on a final state budget. Senate Majority Leader Andrea Stewart Cousins offered that they are currently “in the middle of the middle” despite the April 1st deadline. 

Governor Hochul and her colleagues in the Legislature have until the end of the day today to at least pass a temporary budget extension to ensure state workers get paid this week.

An extension, likely to last two weeks, would keep existing funding levels in place while lawmakers come up with a final spending plan.  Under state law, the lawmakers themselves do not get paid until a final budget is enacted which could limit how long they are willing to operate under an extension.

The Assembly returned last night while the Senate is expected to reconvene at noon today. 

The two main roadblocks, which have prevented negotiations on everything else, are the Governor’s housing proposal and her roll back of the controversial 2019 bail reform laws. The Governor’s housing plan calls for 800,000 new units to be built in the next 10 years and mandates downstate municipalities increase their housing stocks by 3% every three years and upstate municipalities increase by 1% every three years. Most controversially, the plan would also give the State the authority to override local officials on zoning and development matters in municipalities that do not meet the required threshold. The Legislature agrees on the need for more housing but according to Majority Leader Stewart-Cousins, they prefer a gentler approach. She offered “Our one-house never included any mandates, and again, as I’ve always said, I’m not opposed to the stick, as they say, but I don’t like to start with sticks. I want to start with carrots and community engagement so that we can get to the end that we’d like.” 

While bail reform has also stalled budget negotiations, Legislative Leadership and the Governor made significant progress over the weekend with the Governor now likely to get changes she was seeking to the “least restrictive” standard for judges. On a similar note, tweaks to discovery reform may now also be on the table. Now, Assembly Speaker Carl Speaker Heastie and Senate Majority Leader Andrea Stewart-Cousins must sell these changes back to their Conferences. It is worth noting bail reform held up last year’s budget for nine days. Many expected it could cause an even lengthier standoff this year. We will have to wait and see if the weekend’s progress leads to a larger deal. Speaking to reporters last week, Governor Hochul said “ I am very clear on what I am looking for. I am looking to restore people’s confidence in our system. Part of that has to do with fixing some of the bail laws that I believe don’t give the judges the clarity that they need to have. There is an inconsistency in our law now.” Advocates of the 2019 bail reforms argue that there is not yet enough data to determine if the changes are working and rolling them back now would be premature.

Here are some other issues to keep an eye on in the final budget: 

• Fee-for-Service Carve Out of the Medicaid Drug Benefit & the 340B Federal Drug Pricing Program—The State’s new Fee-for-Service Medicaid Drug Program, NYRx, originally enacted in the State Fiscal Year 2020-21 budget, went into effect over the weekend. Legislators in both Houses, as well as providers of safety net health care—hospitals, Federally Qualified Health Centers, and Ryan White Clinics—still have major concerns ranging from how proposed Reinvestment Funds will make up for millions in lost 340B revenue and account for growth in patient census in the long run to how the program will operate when many safety net healthcare providers open their doors this morning for the first time since the Carve Out went into effect. Expect at the very least some tweaks to the Reinvestment Funds bringing more clarity to the allocation of those dollars to safety net providers who desperately need them; and at most legislative language to carve the benefit back in to Managed Care while maintaining fiscal certainty for community pharmacists and achieving many of the goals around transparency in the Carve Out.

• MTA & Non-MTA Transit Funding—Public Transit systems across the State are pushing to ensure they have the operating and capital funding to meet the vision of leaders for transit over the next several years, from green procurement, to paratransit expansion, to supporting transit oriented development across the State. When it comes to the MTA, the Governor wants New York City to contribute $500 million to ensure the MTA is in good financial standing. Ideas to generate revenue for the MTA have ranged from implementing residential parking permits in NYC to a local tax on streaming service subscriptions. In Albany last week, Mayor Eric Adams said “Half a billion dollars is just something that we cannot take on at this time. And both houses heard us. In their one house proposals they came up with counter-proposals and now it’s time for the deliberation process.” When it comes to non-MTA transit, the name of the game is creating dedicated revenues to support sustainable funding increases. This year, Upstate transit authorities are seeking at least a 20% bump over State Fiscal Year 2023. Both houses had Upstate authorities over a 20% increase. To fund that increase, the Senate included a transportation network company surcharge, while the Assembly proposed a hybrid approach of a dedicated increase of the business income tax rate, a digital streaming tax (also proposed for the MTA service area as we mention above), and a delivery surcharge.

• Charter School Cap– Both houses omitted the Governor’s plan to lift the cap on charter schools in New York City and reissue nearly 100 unused charters. Leadership in the Legislature would instead like to see those resources go to traditional public schools and Mayor Adams has voiced concerns over how much it would cost the City in rent payments for the schools. 

• Cap and Invest– Governor Hochul proposed a plan that would tax carbon emissions and use those funds to pay for energy rebates for consumers. Her budget proposal estimated the program would generate nearly $1 billion annually. Many environmental advocates were frustrated by carveouts in the Governor’s language for energy-intensive industries that they say picks winners and losers. The Senate included the language with additional guidelines, including specific programmatic details regarding issuance and allocation of allowances, labor standards and protections, prevention of market manipulation, and protections for disadvantaged communities, as well as by setting up the Climate and Community Protection Fund to ensure all benefits and rebates from the program are equitably distributed. However, it was intentionally omitted in the Assembly. 

• Natural Gas Ban– The Governor, Senate, and Assembly were all in agreement on the plan to ban fossil fuel hookups on newly built home and buildings, with each side including the language in their budget proposals. The versions have slight differences on timelines, exemptions, and other details, but the proposal, which has already been in effect in NYC, is well on its way to being implemented statewide.  

In Washington D.C., Congressional leadership and the White House are trying to inch closer to an agreement on the debt ceiling to avoid a general default sometime this summer according to the Treasury. Speaker Kevin McCarthy has vowed to oppose a clean raise of the debt ceiling. In a letter sent to the White House last Tuesday, McCarthy reiterated that his Conference is set on pairing any debt limit increase with policies that would cut spending going forward—some examples included cutting nondefense spending to “pre-inflationary” levels and rescinding unspent pandemic aid. President Joe Biden reiterated that he will not bargain on the debt limit, saying the debt ceiling has been raised “by previous Congresses with no conditions attached and this Congress should act quickly to do so now.” However, the President has said he would engage McCarthy on Budget talks separately.

In those conversations, Speaker McCarthy is promising not to cut Social Security, Medicare, a slew of other safety net programs, or the military in his proposed budget which fiscally, may not be possible without massive cuts to areas like education and infrastructure. The President, knowing McCarthy has backed himself into a corner, has pushed the Speaker to release a full budget proposal which would either formalize his support for cuts to popular programs, or risk angering the far right of his conference by compromising with Democrats. McCarthy has demanded additional meetings with Biden, saying “I would bring the lunch to the White House, I would make it soft food if that’s what he wants” in an obvious jab at the President’s age. Senate Majority Leader Chuck Schumer offered his opinion, saying “you can’t sit down and discuss something if you don’t have a plan. Speaker McCarthy just says let’s meet. But what are they going to do, discuss the weather?” Biden has called on McCarthy to release a full budget plan before Congress leaves for Easter recess so talks can begin in earnest when they return. 

Former President Donald Trump kept up with his attacks on Florida Governor Ron DeSantis who is widely viewed as Trump’s most serious challenger for the 2024 GOP nomination, despite not having actually announced his candidacy yet. Either way, Trump taunted DeSantis over his sinking poll numbers and reiterated his belief that DeSantis would not have even won the Florida Governorship had it not been for his endorsement. 

While Trump has enjoyed recent gains in the polls, there is still a lot of game left. DeSantis will undoubtedly see a bump in his numbers that traditionally follows a formal campaign announcement and with 10 months until the first primary. He has plenty of time to make inroads in early state’s like Iowa and New Hampshire. Trump’s legal woes could always throw a wrench in the process but any candidate trying to dethrone Trump, DeSantis included, will need strong performances in the GOP primary debates which are slated to begin in August. 

Oh yeah, and a Queens man was recently indicted… Jack weighs in on the indictment’s possible impact on the race for the White House with News 4 Buffalo’s Marlee Tuskes.

-Jack O’Donnell

Evergreen Health, fuming over a controversial state proposal that it says will threaten one of its key funding sources, sent a letter with its affiliate, the Pride Center of Western New York, informing the Governor, a Buffalo-born Democrat, that it was denying her administration’s request to participate in the parade and festival on June 4. [Read more.]

 

 

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