NYC and NY State Stimulus Details

NY Gov. David Paterson and Sen. Charles E. Schumer (D-NY) held a conference call about the NY State share of the American Recovery and Reinvestment Act aka the stimulus package. According to the NY Times, the anticipated aid will bring more than $21 billion into the state, would close much of the city’s $4 billion budget gap and would significantly narrow the state’s $14 billion deficit. But Gov. Paterson warned that the state deficit was widening by the day.

Details that follow are abbreviated from Sen. Schumer’s website.

By some estimates, the package will create 215,000 new jobs in New York alone, while preventing layoffs of thousands more. "This is one of the first bills where New York gets more back from the federal government than we have put in," said Schumer.

FMAP
$12.6 billion boost in Federal Medical Assistance Percentage (FMAP) for New York over the next nine quarters. Currently, Medicaid is funded using a formula that determines how much the federal government contributes and how much the state is obligated to pay for Medicaid services. In New York, the federal government covers just 50 percent of Medicaid costs. New York is one of eleven states that divide the remaining bill between the state and the counties, putting a massive burden on county budgets. As a result of this, Upstate New York counties expect to pay $1.580 billion in Medicaid expenses this year. Because New York counties are faced with such a large share of Medicaid expenses, a portion of the FMAP boost for New York would go directly to the counties. So of the $12.6 billion, $8.6 billion will go to the state, $2.8 billion to New York City, $929 million to counties in Upstate New York and $262 million to Long Island.

EDUCATION AID

$2.72 billion for the State Fiscal Stabilization Fund to prevent massive cuts to education. New York spends approximately one-third of all tax revenue on education. All states, including New York, face massive budget deficits due to declines in the tax base. This funding will help make up that difference and prevent teacher lay-offs, cuts to education and property tax increases.

$800 million for Special Education Part B State Grants/IDEA to help educate individuals with disabilities. The federal government currently funds IDEA at only 17 percent. This money will significantly increase the federal share for special education funding.

$1 billion for Title I of No Child Left Behind. No Child Left Behind has been chronically underfunded, which means schools have had to live up to the demands of NCLB without the resources to do so. This funding is a much needed injection of funds to help schools meet the requirements of NCLB.

INFRASTRUCTURE

$87.5 million through the Drinking Water State Revolving Fund to address the backlog of drinking water infrastructure needs

$439.2 million through the Clean Water State Revolving Fund to address the backlog of clean water infrastructure needs

$1 billion in Highway Funding to be used on activities eligible under the Federal-aid Highway Program’s Surface Transportation Program and could also include rail and port infrastructure activities at the discretion of the states.

$1.3 billion in Mass Transit Funding for investments in mass transit.

COLLEGE TUITION TAX CREDIT

A new tax credit for tuition of $2,500 - a significant improvement over current tax benefits to families with children in college. For families that receive some benefit now from either the HOPE credit or the tuition deduction, the maximum benefit per student will increase by 39 to 317 percent, depending on the family's circumstances. Additionally, tens of thousands of families that receive no tax benefit today will be eligible for a refundable credit of up to $1,000.

FOR SENIORS & FAMILIES TO WEATHERIZE THEIR HOMES:

More than $403 million in weatherization funds for New York seniors and families to help reduce their sky-high home heating costs and create thousands of new jobs. This investment will save families up to $800 each on their utility bills and will create approximately 30,000 jobs in New York alone. It will also make New York more energy efficient and begin to reduce our dependence on volatile foreign sources of energy.

FOR LAW ENFORCEMENT

$96 million in COPS grants to hire and rehire local law enforcement officials. Schumer fought to make sure this funding was included in the bill so that local police departments could afford to maintain current staffing levels or hire new officers to combat rising crime.
$166.3 million in Byrne/JAG grants, which provide flexible funding to local police departments to support a variety of law enforcement efforts.

TAX BREAKS FOR NEW YORK FAMILIES

Up to $400 for individuals and $800 for married couples for the Making Work Pay Tax Credit, $250 to Social Security beneficiaries, SSI recipients, and disabled veterans.

$7,500 to $8,000 for the Improved Homebuyer Tax Credit for first-time homebuyers who purchase a home from the date of enactment through at least July, 2009. New homebuyers will no longer have to pay back the credit as required under current law. The exact amount of the credit is still under negotiation.
$2,500 for the College Tuition Tax Credit (an increase in the tax credit for higher education and allowing the credit for four full years)

3,142,000 NY taxpaers protected from the Alternative Minimum Tax, based on an estimate of the Congressional Research Service for 2009. Nationally, 26 million working families protected from the Alternative Minimum Tax, representing thousands of dollars in additional income taxes per family.

HOUSING

$4 billion nationally through the Public Housing Capital Fund to enable local public housing agencies to address a national $32 billion backlog in capital needs – especially those improving energy efficiency in aging developments – in this critical element of the nation’s affordable housing infrastructure. Of this amount, NYC will receive $390 million.

$251 million in HOME Funding to enable state and local government, in partnership with community-based organizations, to acquire, construct, and rehabilitate affordable housing and provide rental assistance to low-income families

$142.1 million through the Homelessness Prevention Fund to be used for prevention activities, which include: short or medium-term rental assistance, first and last month’s rental payment, or utility payments. As such, most of this funding will go directly into the economy of local communities, as the funds will be used to pay housing and other associated costs in the private market

$98 million for Community Development Block Grants, flexible grants that provide communities with resources to address a wide range of unique community development needs.

$51 million for the Neighborhood Stabilization Program, a program that provides funding for communities to redevelop demolished or vacant properties and purchase and rehabilitee foreclosed homes for resale. This grant program will endow Upstate New York communities with the funds needed to finally tackle the growing vacant housing problem that drives down property values and contributes to neighborhood blight.

STATE AND LOCAL FINANCE | Critical Federal Reforms Needed

Whether Obama or McCain gets elected on Tuesday, an early issue for the new president is the fiscal crisis facing state and local governments. Beleaguered officials have watched July-September revenues come in lower than expected while financial markets have become more risk-averse. They have been trooping to the Congress already - expect them to start pressing the President-elect after the election.

The fact is, the Federal Government is the only one of America's 87,500 governmental units that can print money. A Federal response could be to provide short-term fiscal assistance in exchange for commitment for structural changes that will bring state and local revenues and expenses into balance and will bring debt service below a reasonable ratio to a multi-year average of tax revenues.

It's not just that states and localities have seen revenues decline. Many pension funds that have invested heavily in equities and appeared to have adequate funds to pay pension obligations now look grossly underfunded. The loss in value of pension-fund assets invites further questions about pension-fund accounting. In many cases the answers to these questions will distress pensioners, taxayers and investors in municipal debt. When sorrows come, they come not single spies, but in battalions.

In New York State, Gov. David Paterson has a clear understanding of New York State's fiscal outlook. He has just raised his forecast of the budget gap facing the state this fiscal year to $1.5 billion from the $1.2 billion the state projected weeks ago. States and localities are not permitted to run deficits, so Gov. Paterson has asked the state legislature to meet Nov. 18 to close the budget with decisions that will raise more revenue and cut spending. He says nothing will be off the table and he sounds as though he means it.

New York State's problem is huge and gets worse next year and the year after. Borrowing to fund current deficits faces (appropriate) legal obstacles and would be a hard sell. Muni markets are opening up again, but with the loss of credibility of the mni bond insurers, rates are higher.

The only options seem to be to cut budgeted expenses or raise taxes. California is in a similar bind and, despite budget cuts made earlier this year, more than 20 states have identified budget gaps that combine to exceed $11 billion.

The U.S. Treasury is an attractive option for budget-closing loans. States and localities cannot run deficits but Washington can. State and local officials and their Congressional allies can argue that their problems stem from failures of Federal regulation of financial markets and that if banks can be bailed out, why shouldn't Washington provide short-term help to state and local governments?

I imagine the National Governors Association and the U.S. Conference of Mayors are working hard on this question right now.

Washington's challenge - Obama's or McCain's challenge - will be to respond in such a way that the short-term pain of state and local fiscal adjustments is reduced while changes in long-term fiscal practices are made. Federal crisis assistance to state and local governments should come with conditions that are as thought-through and as tough as new regulations being prepared for the financial sector.