NEW YORK STATE ENACTED BUDGET SUMMARY: FISCAL YEAR 2019-20

Apr 09, 2019

Governor Cuomo and state lawmakers approved a $175.5 billion spending plan and final state budget over the weekend. Some real estate-focused aspects of the enacted budget include measures that make permanent the state’s 2 percent property tax cap, prohibit housing discrimination based on lawful source of income, create new real estate transfer tax rates in New York City, and make changes to the state’s STAR exemption and credit programs. New York state also removes the 20 percent tax deduction for pass-through businesses from its state tax code and the New York City tax code. REALTORS will still be able to claim the deduction on their federal taxes.

A final budget did not include proposals to impose a pied-a-terre tax on high-end New York City properties nor measures that would expand rent control outside of New York City. More details on these topics, as well as non-real estate related issues can be found below.

Property tax cap
The final budget makes the current state 2 percent property tax cap permanent without any changes or expansions in the law.

New real estate transfer tax rates in New York City
The final state budget includes new real estate transfer tax rates in New York City on conveyances $2 million or more. In addition to the existing state real estate transfer tax rate of $2 for each $500 of consideration, the state budget creates a new transfer tax rate of an additional $1.25 for each $500 of consideration when the conveyance is $3 million or more on residential property in New York City, or when the conveyance is $2 million or more on non-residential property in New York City.

The state budget also expands the “mansion tax” in New York City, creating new real estate transfer tax rate tiers on conveyances of residential property valued at $2 million or more. This is in addition to the existing state “mansion tax” of a 1 percent transfer tax on residential property valued at $1 million or more. The new additional transfer tax rates on residential property in New York City are:

• 0.25 percent on conveyances $2 million but less than $3 million;
• 0.5 percent on conveyances $3 million but less than $5 million;
• 1.25 percent on conveyances $5 million but less than $10 million;
• 2.25 percent on conveyances $10 million but less than $15 million;
• 2.5 percent on conveyances $15 million but less than $20 million;
• 2.75 percent on conveyances $20 million but less than $25 million;
• 2.9 percent on conveyances $25 million or more.

The new revenue from these additional taxes will go toward funding the Metropolitan Transportation Authority. The new tax rates will take effect on July 1, 2019 and apply to all conveyances except those in contract entered on or before April 1, 2019.

Elimination of 20-percent tax deduction for pass-through businesses
The final budget removes the ability for individuals to claim on their state and New York City taxes the new 20 percent tax deduction for pass-through businesses created by the 2017 federal Tax Cuts and Jobs Act provided in Section 199A of the Internal Revenue Code. REALTORS claiming this tax deduction on their federal taxes will not have the option to claim the deduction when filing their state and New York City taxes and would have to add the amount of that deduction to their income.

Source of income
New Yorkers who receive some form of lawful source of income including non-wage income or subsidies will now be protected against discrimination in housing under state Human Rights Law. This is already law in much of the state including New York City, Nassau, Suffolk, Westchester, Buffalo, Syracuse and more. Protected classes would be able to file complaints through the New York State Division of Human Rights if they feel they have been discriminated against because of their lawful source of income.

STAR exemption program changes 
The final budget contains an “incentive” to switch from the old version of the STAR exemption program to the new program (STAR credit program) where you pay the total property tax bill up-front and receive a STAR credit check at a later date. If you do not receive your check before your school taxes are due, the taxpayer could be entitled to interest. The new budget language, however, caps the STAR benefit at the existing rate if you are an existing homeowner participating in the STAR exemption program. If you switch to the new STAR credit program, your STAR benefit would be eligible for up to 2 percent growth over the prior year benefit.

OVERVIEW OF ADDITIONAL STATE BUDGET TOPICS

Spending
The budget agreement includes spending in the following categories:
Total State Operating Funds: $102.1 billion; 2 percent growth
All Funds Spending (includes federal funding): $175.5 billion for FY 2020
School Aid: $27.9 billion; 3.8 percent growth
State Medicaid/Health Spending: $19.6 billion; 3.6 percent growth

Metropolitan Transportation Authority
In addition to the increased real estate transfer tax on properties above $2 million, which will fund the MTA, the budget includes several changes and new funding streams for the MTA. 
Reforms: The budget requires the MTA to develop a reorganization plan by June and requires the MTA to undergo an independent forensic audit and efficiency review. The budget also implements a 20-year capital needs assessment beginning in 2023, increases the competitive procurement threshold from $100,000 to $1 million and requires public reporting on MTA performance metrics.
Congestion Pricing: MTA funding includes a Central Business District tolling program. This will include the installation of electronic tolling devices on the perimeter of the Central Business District, defined as streets south of 60th Street in Manhattan. Tolls vary and passenger vehicles will only be charged once per day. The implementation day will not be before December 31, 2020. This tolling program will leverage $15 billion, which will be dedicated to MTA capital needs.
Internet Sales Tax: The budget will provide a consistent framework for the collection of required sales taxes by internet marketplace providers, which is expected to annually generate $160 million in new revenue for local governments and $320 million for the MTA capital plan, supporting up to $5 billion.

Public Campaign Finance
• The budget establishes a commission that will have binding power to implement public financing for legislative and statewide offices, authorizing up to $100 million annually in public funds. The Commission’s report is due by December 1, 2019.

Election Reforms
• Legislation mandating three hours of paid time off for all New Yorkers to vote on Election Day, enacting online voter registration, funding e-poll books, and expanding upstate voting hours to begin at 6 a.m. were enacted as part of this year's budget, which also includes $10 million for early voting.

Clean Water Infrastructure
• The FY 2020 Budget will invest an additional $500 million in clean water infrastructure, building on the State's previous $2.5 billion investment.

Education Funding
• An increase of over $1 billion in education aid will bring total education funding to a record $27.9 billion. More than 70 percent of the increase will go to poorer districts.

Plastic Bag Ban
• The Enacted Budget includes legislation to ban single-use plastic bags provided to customers and allows counties and cities to opt in to a 5-cent fee on paper bags, with 40 percent of the revenue supporting local programs and 60 percent supporting programs in the State’s Environmental Protection Fund.

Health Care
• The budget codifies the Affordable Care Act and Health Exchange into law.

Criminal Justice Reform
Bail and Pretrial Detention: The budget eliminates cash bail for misdemeanors and non-violent felonies. It includes a new requirement that police officers must issue desk appearance tickets to most people charged with misdemeanors and Class E felonies, rather than making a custodial arrest.
Discovery: The budget alters the discovery process by requiring that both prosecutors and defendants share all information in their possession well in advance of trial. The legislation also seeks to protect victims and witnesses from intimidation and other forms of coercion by providing prosecutors with the ability to petition a court for a protective order.
Right to a Speedy Trial: Language is included in the budget to require courts to take a proactive role in advising litigants on how time will be charged.

Notable items not included in the Enacted State Budget
Rent Control: Rent control is expected to be addressed by the end of the legislative session in June, however there were no rent control extensions or expansions included in the enacted budget.
Recreational Marijuana: The Governor proposed legalizing adult-use marijuana and taxing its sale and production, however the Legislature and Governor did not agree on any provisions concerning the recreational use of marijuana in the enacted budget.
Prevailing Wage: Both houses of the Legislature supported expanding prevailing wage to all construction projects using public funds, however this was not included in the enacted budget.


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