With the delivery of the State of the State address and budget presentation on January 13, the New York legislative session finally began in earnest. As it does every year, the Governor's budget broadly outlines a roadmap for tackling the state's biggest issues over the next six months, which include an increase in the minimum wage, paid family leave, a $100 billion investment in infrastructure projects and over $400 million in small business tax relief.

Dentons' State Government Affairs team has dissected these and other legislative matters to offer outlook and analysis for your use in the new year.

Other legislative concerns addressed in this policy brief include tax policy, settlement expenditures, economic development, education, environment, health care and transportation.


Dentons’ State Government Affairs team examines an array of issues that are likely to be addressed over the course of New York's six-month legislative session. The next three months will be focused on the state budget, as legislative leaders and the Governor negotiate which measures will make it into the final budget due on April 1. The subsequent three months of the legislative session, from April to the end of June, will largely be focused on outstanding legislative priorities that were not addressed during the budget process.

Economic development

Continuing a multi-year trend, the budget includes economic development initiatives focused largely on upstate regions. The budget funding builds upon the recently awarded $1.5 billion Upstate Revitalization Initiative (URI) funding that was doled out to three upstate regions by injecting an additional $200 million to drive revitalization in the four regions that did not receive URI money in 2015.

The budget also includes $200 million to support a 360,000 square foot wafer fabrication facility to be constructed at the Nano Utica site and core capital and tax-credit funding for a sixth round of Regional Economic Development Council (REDC) awards. Economic development initiatives also include high-profile capital projects like the proposal to dramatically expand and improve the Jacob K. Javits Convention Center by 1.2 million square feet through design-build contracting, and a $3 billion transformation of Penn Station and the James A. Farley Post Office into a transportation hub called the Empire Station Complex.

Education

With public education constituting the largest area of state spending in New York, exceeding a $60 billion price tag, it is important to touch on a few of the "big ticket" items in the budget. From a policy perspective, much of the focus in this year's budget is on initiatives aimed at improving the educational opportunities for young students and ensuring all students are college or career ready.

In past years, the Senate Republican majority has prevented movement of the DREAM Act in the state legislature, pushing instead for the Education Investment Tax Credit which would benefit private and religious schools. This year's budget includes both the DREAM Act and the Education Tax Credit. Observers will be watched closely to see if either of these top education priorities for the respective legislative houses make it into the final budget agreement due on April 1.

Expect to hear more about the Governor's plan to shift significant costs, totaling roughly $800 million, onto New York City as part of the budget's cost saving measures. New York City had previously paid approximately three percent toward the CUNY budget. Under the Governor's plan, the City would now pay 30 percent­­—matching the number of appointments it has on the CUNY board—totaling about $500 million in additional costs for the City. The remaining $300 million is largely derived from a plan to require the City to cover its own increases in Medicaid expenses. We have already seen significant political blowback from City-based legislators, which should only intensify as the budget season moves forward.

Environment

The budget delivers a funding increase for the Environmental Protection Fund (EPF) of $123 million, to $300 million—representing the highest level of funding since the creation of the fund. The budget maintains state funding for environmental, parks and agricultural programs, while providing a new round of capital funding for environmental facilities and wastewater infrastructure to the tune of $100 million.

Health care

This budget continues the trend of focusing on Medicaid redesign as part of a broader effort to improve outcomes and reduce cost. Total federal, state and local Medicaid spending is expected to be $63 billion in FY 2017.

In April 2014, the federal government awarded New York State an $8 billion, five year Medicaid waiver. In the first two years, $1.7 billion has been awarded under the waiver. Over the next year, the state's 25 Performing Provider Systems will increase their participation in value-based payment arrangement and continue to receive performance based payments. In addition, the state will continue its implementation of the State Health Innovation Plan (SHIP) under the terms of a $100 million federal award.

The budget maintains $2.5 billion in capital investments to make infrastructure improvements and provide additional tools to stabilize health care providers, and continues the implementation of the Medicaid Redesign Team recommendations—including increased payments to essential community providers and new payments to enhance population health improvements. The budget also includes $484 million in total funding for the operation of the state's exchange, the NY State of Health. Finally, as touched on above, the budget also re-institutes the New York City contribution toward financing the growth in Medicaid expenses from 3.6 percent in FY 2017 and 5.8 percent in FY 2018.

Settlement revenue

The state received an unexpected windfall of $8.3 billion from financial settlements with banks and insurers in Fiscal Years (FY) 2015 and 2016. The Governor's budget earmarked $5.4 billion for one-time purposes, including capital projects and infrastructure investments, with remaining $2.3 billion reserved for the following priorities: a Thruway stabilization plan ($700 million) focused on infrastructure needs and a toll freeze until 2020; a Thruway Toll Reduction Plan ($340 million) for high volume users; a transportation capital plan ($200 million) allocated to the State Department of Transportation (DOT); homeless and affordable housing ($640 million); environmental protection ($120 million); economic development ($255 million); poverty reduction initiatives ($25 million); and municipal consolidation ($20 million).

Social issues

Not surprisingly, this year's budget addresses a handful of hot button social issues likely to dominate news coverage of this year's legislative session. Governor Cuomo is pushing for an increase to the minimum wage in New York State, building upon more modest past efforts. This year's budget calls for an increase in the minimum wage to $10.50 in New York City and $9.75 in the remainder of the State, effective July 1, 2016, gradually increasing to $15.00 in New York City on December 31, 2018 and across the rest of the State on July 1, 2021.

Another priority highlighted by the Governor in his combined budget and State of the State Address is paid family leave. The budget includes legislation creating a paid family leave program, under which employees will be eligible for twelve weeks of paid family leave when caring for an infant or ill family member. The maximum paid benefit will grow to 50 percent of the state's average weekly wage by 2021.

Finally, the budget also establishes a $20 billion, comprehensive five-year investment in affordable housing opportunities and services for the homeless—part of the Governor's efforts to tackle the state's growing homeless problem—most notably in New York City.

Expect significant opposition from the Republican-controlled State Senate and various business interests in the state regarding the proposed minimum wage hike in the budget.

Taxes

The newly released budget presents five tax cuts and credits that will provide $444 million in direct tax relief, with a focus on small businesses. The budget reduces the net income tax rate from the current 6.5 percent to four percent effective January 1, 2017 for small businesses that file under Article 9-A. Under this cut, small business is defined as a business with less than 100 employees and with net income below $390,000.

The budget also provides certain personal income tax reductions for small businesses whose members pay taxes via the personal income tax. The existing five percent sole proprietor and farm business income AGI subtraction, available to taxpayers with small business income of $250,000 or less, is increased to 15 percent under the budget and expanded to include members of partnerships, S corporations, and LLCs under certain circumstances.

Other tax-related provisions outlined in the budget include: Thruway toll tax credits, measures to simplify the taxation of remarketed hotel rooms, a variety of changes to the School Tax Relief (STAR) program, and a proposal to legalize and regulate combative sporting events (MMA) in New York State.

Transportation

Highlights of the transportation budget include a commitment of $8.3 billion in state resources toward the Metropolitan Transportation Authority’s (MTA’s) $26.1 billion 2015-2019 transit capital plan, and a $22.1 billion five-year State Transportation Capital Plan aimed at improving roads, bridges, airports, rail facilities and ports, as well as transit systems investments in the Thruway.

The budget provides $200 million for an upstate competition to accelerate investments in commercial passenger and cargo service airports under which the state will award five grants to airports of approximately $40 million each. It also includes the BRIDGE NY Program—a five-year, $1 billion transportation program to replace, rehabilitate and maintain vital state and local bridges; the PAVE NY Program—another five-year, $1 billion program for state and local paving projects; and the Extreme Weather Infrastructure Hardening Program—a five-year, $500 million program to improve roadways that have proven susceptible to flooding and other extreme weather events.

Political considerations

With two of the "three men in a room"—former Assembly Speaker Sheldon Silver (D) and former Senate Majority Leader Dean Skelos (R)—convicted on federal corruption charges in the past year, many observers were watching to see what kind of ethics platform the Governor would lay out in his budget. Not surprisingly, the Governor delivered a robust set of ethics proposals, including closing the “LLC loophole”, limits on outside income for members of the Legislature, campaign finance reform measures and limited public financing of campaigns, FOIL reforms, improved transparency and oversight related to vendors and for-profit businesses, and lobbying reform that specifically addresses procurement issues. As always, we have to wait to see how many of these proposals survive the budget negotiation process, in particular with Senate Majority Leader John Flanagan (R), who is on record opposing some of the above-mentioned ethics reform measures.

Finally, the upcoming election in November, where every member of the state legislature is up for re-election, is likely to play an outsized role in this year's legislative session—particularly in the State Senate where Republicans hold a razor-thin majority. The Governor is expected to call a special election for the Long Island seat vacated by former Majority Leader Skelos, which, depending on the date chosen, could interject political undertones into the 2016 session, and be potentially disruptive to the regular order of the legislative session.