President Biden signed the American Rescue Plan Act (ARPA) into law on March 11, 2021, enacting a $1.9 trillion package providing funding and policy changes intended to assist the nation in its ongoing response to impacts resulting from the COVID-19 pandemic. New York, like many states with budgets profoundly affected by COVID-19-associated economic impacts, has been advocating for robust state and municipal aid to be included in ARPA’s provisions. This article examines the impacts of the passage of ARPA on New York and its fiscal position as the state enters negotiations between the state legislature and the Governor related to its state fiscal year 2021–22 (SFY22) budget.
New York’s Fiscal Need
In his letter of December 9, 2020, to the state’s congressional delegation, New York Governor Andrew Cuomo established his administration’s position of the state’s need for federal funding to close its current budget gap. The correspondence, and the state’s financial plan underlying the Governor’s initial Executive Budget proposal issued on January 19, 2021, outline a two-year budget gap for state fiscal years SFY21 and SFY22 of roughly $15 billion.1 The correspondence to Congress set forth New York’s needs to avoid deep cuts to local and state budgets: $15 billion in unrestricted aid to the state, $9 billion in aid to New York City and $4.5 billion in aid to the Metropolitan Transit Authority (MTA) to stabilize its operations.2
The state released its amended financial plan in February 2021, which included re-estimates and amendments made in the Governor’s Executive Budget proposal for SFY22. This updated financial plan identified a revised two-year budget deficit of $12.7 billion, which included General Fund surpluses in SFY21 and SFY22 of $1.6 billion and $676 million, respectively.3 The Executive Budget proposes to use this $2.276 billion surplus as stabilization payments distributed over SFY23–25 at roughly $759 million a year to offset projected budget deficits.4 Both financial plans assume only $6 billion in unrestricted federal support, distributed over SFY22 and SFY23, and noted that if the Governor’s full $15 billion request to Congress was met, many fiscal savings measures and revenue increases (e.g., new taxes and fees) proposed in the Governor’s budget could be modified or reversed.5 Notably, the more recent amended financial plan does not revise from $15 billion the state’s expressed need, despite the financial plan’s revised budget gap of $12.6 billion.
Of additional note, following the state’s annual Economic & Revenue Consensus Forecasting Conference held in late February, legislative leaders and the Division of the Budget agreed to revised revenue projections and economic forecasts, anticipating additional state revenues of approximately $1 billion in SFY20–21 and $1.4 billion in SFY21–22, an aggregate increase of $2.453 billion over the two-year budget gap period.6 The incorporation of these additional revenues further reduces the two-year budget gap to roughly $10.15 billion, from $12.6 billion.
American Rescue Plan Act Funds
ARPA provides $350 billion in aid to states, territories, counties, cities and tribal governments to cover costs of responding to COVID-19 or eligible negative economic impacts through the Coronavirus State Fiscal Recovery Fund. Funding provided will be available to states for costs incurred by December 31, 2024, and would be distributed in two separate allocations. For states, an initial distribution of at least 50% of funding is to be made no later than 60 days after submission of a state’s certificate of need to the Treasury Department, and the second distribution of no more than 50% of the allocated funding may be provided up to 12 months later. It is possible that the timing for both distributions could occur within New York’s SFY22.
In a press release of March 7, 2021, Senate Majority Leader Charles Schumer (D-New York) provided an initial analysis of ARPA funding projected for New York, including $12.5 billion to the state.7 The analysis also detailed the following projections for distribution of regional and municipal aid, including $6.141 billion for New York City, $3.907 billion for New York counties, and $825 million for small cities, towns and villages. Further, the MTA, which had budgeted to receive $4.5 billion in federal aid to address 2021 shortfalls and had already received $4 billion in the December COVID-19 relief package, will receive an additional $6.5 billion in funds from ARPA. This aggregate $29.942 billion in aid to the state, municipalities and the MTA is expected to significantly reduce the fiscal pressures on the state’s pending budget.
In addition, the ARPA provides direct aid for educational expenditures. An analysis of funding to New York by Senator Schumer’s office indicates that roughly $9 billion in aid will be provided to K–12 school districts to support reopening and to address educational impacts from the pandemic, and $2.6 billion to colleges and universities—half of which must be distributed as financial aid to students.8 The benefits of this education funding could also offset some areas of state education spending in the state’s financial plan.
Impacts Looking Forward
As New York enters the height of its budget negotiations, the impacts of ARPA funding in New York seem certain to be hotly contested between the legislature and the Governor’s Office, and the outcome of those discussions remains to be seen. What seems increasingly clear, however, is that the support offered by ARPA will materially improve the state’s financial position from where it had been previously estimated this past winter.
The Manatt team looks forward to keeping you updated on state budget developments and encourages you to reach out with any questions you may have as the state’s fiscal process moves forward.
1 https://www.budget.ny.gov/pubs/archive/fy22/ex/fp/fy22fp-ex.pdf
2 https://www.governor.ny.gov/news/governor-cuomo-mayor-de-blasio-senate-majority-leader-stewart-cousins-speaker-heastie-and-new
3 NYS Division of Budget FY 2022 Amended Executive Budget Financial Plan: https://www.budget.ny.gov/pubs/archive/fy22/ex/fp/fy22fp-ex-amend.pdf
4 See page 20, Executive Budget Gap Closing Plan: https://www.budget.ny.gov/pubs/archive/fy22/ex/fp/fy22fp-ex-amend.pdf
5 Ibid.
6 https://www.budget.ny.gov/pubs/press/2021/ercfr/consensus-economic-revenue-forecast-fy22.pdf
7 https://www.schumer.senate.gov/newsroom/press-releases/as-new-majority-leader-schumer-delivers-robust-basket-of-covid-rescue-relief-to-new-york-will-help-solve-nys/nyc/li-budget-woes-100-billion-to-ny-families-workers-restaurants-and-small-businesses-includes-ny-vax-dollars-to-keep-shots-going
8 https://www.schumer.senate.gov/newsroom/press-releases/as-new-majority-leader-schumer-delivers-robust-basket-of-covid-rescue-relief-to-new-york-will-help-solve-nys/nyc/li-budget-woes-100-billion-to-ny-families-workers-restaurants-and-small-businesses-includes-ny-vax-dollars-to-keep-shots-going