State legislators gear up for budget fight with one-house proposals

State legislative leaders appear ready for a showdown with Gov. Kathy Hochul, proposing new taxes on New York’s wealthiest while cutting one of her key pitches to lower car insurance prices.

The state Senate and Assembly released their one-house budget proposals late Monday night, offering their official counter to Hochul’s executive spending plan from January. The non-binding resolutions signal the start of serious negotiations ahead of the April 1 budget deadline – and state lawmakers have fired a shot across the bow.

The Legislature included a 0.5% surcharge on state personal income taxes for the top two tax brackets, which would hit households making at least $5 million a year. Lawmakers predict that would create $1.1 billion in new revenue, per state Senate estimates. Legislators additionally proposed increasing the top state corporate tax rate from 7.25% to 9% for businesses that make over $5 million per year and adjusting the state pass-through entity tax credit to 90%, which would bring in $1.8 billion per year.

Senate Majority Leader Andrea Stewart-Cousins told reporters Tuesday that her chamber will “earnestly and honestly push” for the tax hikes on the state’s highest earners. “I think the momentum is certainly on our side with this,” she said. Both chambers have included new taxes on the wealthy in their one-house proposals in past years, but it often amounted to little more than token support that fell out of budget negotiations fairly quickly.

Stewart-Cousins also pointed to uncertainty from the federal government as a reason for new and recurring revenue sources to continue funding programs important to New Yorkers. State Senate Finance Chair Liz Krueger said the chamber offered Hochul a number of possibilities to choose from, even if she continues to oppose increases to income tax. “I think that she will need – because all executives need – to have a set of options that they can use when they need it,” Krueger said. 

The Senate and Assembly also backed New York City Mayor Zohran Mamdani’s idea to raise corporate taxes in the city from 9% to 10.8% for financial sector firms, and from 8.85% to 10.62% for all other businesses. Both Democratic-led chambers want to increase taxes on businesses and households with an annual income of $5 million or more, and support the governor’s $3.6 billion to expand child care.

Mamdani, a former Assembly member, praised the state Legislature for including some of his revenue priorities in their budget pitches. “The Legislature and I agree: we cannot bridge this budget deficit on the backs of working-class New Yorkers,” he said in a statement. “I’m grateful that the Assembly and Senate one-house Budgets recognize the scale of the fiscal crisis facing New York City.” The city is facing a multi-billion dollar budget hole Mamdani hopes to fill with new tax revenue from the rich, lest he be forced (according to him) to raise property taxes on everyone.

Assembly Speaker Carl Heastie said he is “pushing for resolving the financial distress of cities,” but suggested he was open to negotiating other ways to fund that beyond raising taxes. He called out reporters for being “more concentrated on who’s going to win” the battle over taxes.

However, Heastie also pointed to Hochul’s support to pay off $7 billion in unemployment insurance debt last year, an idea that originated in the Assembly. “I'm only giving this to y'all as an example, because I'm not trying to say that somehow I’m going to change the governor's mind,” he said. “But we have pushed for things that the governor wasn't there (on, but) eventually, when she recognized there was a necessity, that we did it.”

The Senate and Assembly additionally each rejected one of Hochul’s core affordability proposals to lower car insurance premiums. The governor has picked a fight with the New York Trial Lawyers Association – pushing to limit damages for people found to be mostly at fault for an accident and change New York's comparative negligence standard to reduce fraudulent claims and staged incidents. Trial lawyers argue reform to prevent insurers from delaying or wrongfully denying a claim would better reduce motor vehicle insurance fraud, which has more than doubled in the state in the last decade, per Department of Financial Services Insurance Fraud Bureau data.

“I think the language and the resolution was very, very clear that we intend to have a broader discussion,” Stewart Cousins said. Heastie said the Assembly omitted the reforms because he’s against non-fiscal policy in the budget.

Both houses kept the sole revenue raise Hochul proposed: a 75% tax on smoke-free nicotine pouches to mirror a long-standing excise tax on tobacco products. The tax is expected to generate about $54 million annually to support Medicaid and health spending, but ex-cops and business leaders have avidly lobbied against it.

A spokesperson for Hochul offered only a brief response to the one-house budget proposals. “The governor looks forward to working with the Legislature to pass a budget that makes New York safer and more affordable for working families,” the spokesperson said in a statement. They otherwise pointed to comments Hochul made last week about taxes, when she said she would continue negotiations with both lawmakers and the mayor’s budget team.

Hochul has in recent weeks made it clear she wants to revisit the state’s climate law to roll back upcoming statutory emissions reduction benchmarks, most likely as part of the budget. The state Senate at least made it clear in its one-house resolution that it does not intend to play ball. “The Senate supports the implementation of a cap-and-invest program under the Climate Leadership and Community Protection Act,” the document reads. Hochul has repeatedly delayed issuing regulations for the program, which are needed to meet the goals of the law. The chamber also said in the resolution lawmakers had proposed a number of policy items to “facilitate CLCPA compliance.”

Neither house proposed a solution for 470,000 New Yorkers enrolled in the state’s Essential Plan set to lose their health care coverage July 1. The Legislature chose not to address the issue as President Donald Trump’s administration considers a request from New York to offset Medicaid changes made in Trump’s landmark tax and spending plan, H.R. 1. It’s unclear when the U.S. Centers for Medicare & Medicaid Services will grant or reject the state’s request to reduce the eligibility threshold for New Yorkers on the Essential Plan to 200% of the federal poverty level from 250%, and use billions of dollars in existing federal dollars to prevent up to 1.3 million people losing coverage. 

“We fully intend to work to make sure that those folks are covered,” Stewart-Cousins said, adding of the federal decision: “We didn’t put the money in there, we expect the money. We’re hoping for the money. But I think there was a clear statement that we understand how important it is to cover those people and frankly, all New Yorkers.”

Stewart-Cousins does not expect an ongoing federal probe into New York’s Medicaid spending will impact the request – sharing Gov. Hochul’s similar, unconcerned sentiment about potential consequences of the investigation.