More than a month past its due date, state lawmakers finally approved a $254 billion budget late Thursday to a relatively warm reception from business groups — although the package notably omitted two tax breaks for office rentals that were being pushed by the real estate industry and Mayor Eric Adams’ administration.
Business boosters were pleased by provisions that expanded the state’s generous film tax credit to $800 million annually, extended and grew another tax break for theater productions and ended a surcharge on businesses by paying off a $6 billion pandemic-era debt to the federal government over unemployment benefits. Even the tax hike on big downstate businesses to help fund the Metropolitan Transportation Authority’s $68 billion capital plan went over relatively smoothly.
But the spending plan that passed overnight got low marks from fiscal watchdogs, who lamented the decision to grow spending by 12% over last year and lower taxes for some middle-class households despite looming federal cuts.
“The extremely late $254 billion state budget virtually ignores the double-whammy threat posed by looming massive federal budget cuts and a possible recession,” said Andrew Rein, president of the Citizens Budget Commission. “Instead of holding funds aside, lawmakers skyrocketed spending, slashed recession reserves, and sabotaged the state’s fiscal foundation. The budget simply is unaffordable.”
Gov. Kathy Hochul and legislative leaders have acknowledged they may need to return to Albany later this year to shift money around if federal cuts materialize. The new state budget also prepares for that scenario by granting Hochul special powers to enact mid-year cuts if the state faces a sudden deficit.
Not included in the plan were the two office tax breaks — one new, and one set to expire — designed to attract commercial tenants to older buildings and neighborhoods outside Manhattan. Supporters told Crain’s Friday they will push to get the programs approved during the remainder of the legislative session that runs into mid-June.
The expiring incentive, the Relocation and Employment Assistance Program (REAP), dates to the 1980s and offers companies a $3,000 tax credit per employee for 12 years when they move from either outside the city or Lower Manhattan to the outer boroughs or Manhattan north of 96th Street. The new incentive is the Relocation Assistance Credit Per Employee Program (RACE), proposed by the Adams administration, which would encourage companies to rent space in older office buildings by giving them a $5,000-per-employee tax credit over 10 years.
Although Hochul wanted to fund both programs, lawmakers resisted. State Sen. Brad Hoylman-Sigal, who represents Manhattan’s West Side, told Crain’s that he and other lawmakers argued against renewing REAP because it runs counter to the post-pandemic goal of revitalizing Manhattan’s office stock.
“The concern overall with REAP is that you’re essentially rearranging the deck chairs by encouraging businesses to move out of Manhattan,” Hoylman-Sigal said. “Why should we be paying businesses to leave the borough when we want them to stay? It’s a perverse incentive, especially with commercial vacancies and empty storefronts.”
The foremost supporters of REAP and RACE were the Five Borough Jobs Campaign, a coalition of local business groups led by REBNY. Randy Peers and Tom Grech, presidents of the Brooklyn and Queens chambers of commerce, said in a statement that the incentives are “essential” to creating jobs in “all corners of the city.”
“While the incentives weren’t included in the budget, we’re encouraged by Gov. Hochul’s leadership and the enthusiasm in the Legislature to prioritize these job-creating resources in the coming weeks,” they said. “Businesses and communities in every corner of the city are relying on us to get these programs passed, and we’re looking forward to working with all stakeholders to ensure that happens in the remaining weeks of the legislative session.”
Supporters credit REAP with helping revitalize former industrial areas — Two Trees is among the landlords that have used the program to lure office tenants to its Brooklyn buildings. But watchdogs have long objected, noting that the city does not set any wage standards to promote good-paying jobs or track how many businesses are moving to New York to take advantage of REAP versus simply shuffling around the boroughs.
A spokesman for Mayor Adams said the administration “will continue to pursue” the passage of his proposed RACE tax break this year.
“This proposal is an incredible opportunity to revitalize and reimagine the economic hub of our state,” spokesman Zachary Nosanchuk said.
Other budget highlights
Other policies approved in the Fiscal Year 2026 budget include:
A phased-in 0.2% tax cut for individuals making under $323,000 starting in 2026.Hochul’s “inflation rebate” checks of $400 for married filers earning up to $150,000 and $300 for couples earning up to $300,000; or $200 checks for single filers earning up to $75,000 and $150 for individuals earning up to $150,000. (The checks will cost the state some $2 billion, said watchdogs, who criticized the program as a political stunt.)Tripling the state’s child tax credit to up to $1,000 per child under the age of 4.A four-year pilot of the Housing Access Voucher Program for low-income households, funded with $50 million for its first year.Banning private equity firms from bidding on single- and two-family homes during their first 90 days on the market.A “bell-to-bell” ban on smartphones in K-12 public schools.Changes to the state’s discovery laws that govern evidence sharing between prosecutors and defense lawyers. The rollbacks, which were intended to prevent cases from being dismissed based on timing technicalities, ended up narrower than what Hochul and local prosecutors had sought, after pushback from criminal justice groups and lawmakers.
