Editor's note: This story was corrected at 3 p.m. Jan. 16, 2018. An earlier version incorrectly reported the scope of the governor's proposed budget. It totals about $168 billion.
CAPITOL — Gov. Andrew M. Cuomo on Tuesday vowed to restructure New York state's tax code to address the loss of federal tax deductibles, and said the state Department of Health should study the potential impacts of legalizing recreational marijuana.
He also outlined tax and fee increases intended to close a projected $4.4 billion 2019 state budget deficit.
"It's not just the budget, it's an economic transformation plan, given the changes we are seeing in Washington," Cuomo said in a presentation in the Clark Auditorium at the State Museum in Albany.
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The proposed budget totals about $168.2 billion, an increase of 1.9 percent from the current budget. Cuomo urged the state Legislature, whose leaders were in the audience Tuesday, to attack the state's revenue problems and approve it by the statutory April 1 deadline.
Cuomo is proposing that the state switch from a system in which employees pay a state income tax to one in which employers pay a payroll tax. The new federal tax bill restricts the deductibility of state income taxes on federal tax returns, while not restricting the deductibility of payroll taxes.
"This is going to be challenging, my friends," Cuomo said. "In many ways, this is going to be the most challenging budget we have ever had."
Cuomo first outlined the idea of a payroll tax, which would likely reduce worker take-home pay in return for lifting the state tax liability, during his State of the State address two weeks ago in Albany.
The state Department of Taxation and Finance is to release a report later this week on the payroll tax, and Cuomo has already said the state will sue the federal government over the new tax law.
The budget also proposes $1 billion in new fees and taxes. "It's just too big a deficit and the choice of cutting education or cutting health care, I don't think is a place anyone wants to go this year," Cuomo said. "So we have to raise revenue."
He proposes raising $750 milllion from fees on non-profit health care companies that are being sold or converted to for-profits, a surcharge on opioid prescriptions that would raise an estimated $170 million, and forcing internet companies that do business in the state to pay an internet tax that would bring in an estimated $318 million, half of which he said would be shared with local governments.
Capital Region Republican legislators, however, were quick to knock the plans for increased spending, and most legislators were reacting cautiously to the idea of wholesale changes in the state's tax collection system. The state Senate remains, for practical purposes, under Republican control.
"I don't think that we'll be able to get back to solvency by the way we collect taxes," said state Sen. James Tedisco, R-Glenville. "This is just going to be another burden on the small businesses of New York state."
NFIB/NY, which represents small independent businesses, said the problem is spending in Albany, not the federal tax bill. "Small business in New York continued to face increased costs across the board," said state Director Mike Durant. "Finger-pointing and denial is not going to solve the economic and financial problems our state faces."
But Assemblyman Phil Steck, D-Colonie, said he saw some encouragement in Cuomo's assertion that New York needs to deal with its being a $48 billion "donor state" to the federal government, with residents paying that much more in taxes than they receive in services.
"As we are faced with the uncertainty of the federal administration's devastating tax plan, I was encouraged to see that an effort is being made to offset the burden that is being placed on the backs of New Yorkers from all walks of life," Steck said in a prepared statement.
The proposal to study marijuana legalization did not appear to have an immediate budget impact.
The marijuana issue has come to the fore in recent weeks as several states have legalized or considered legalizing marijuana for recreational use.
Cuomo in the past has been an opponent of legalizing recreational marijuana use, but some Northeastern states are legalizing and regulating it, giving them a new source of tax revenue. Cuomo didn't say New York should do it for the money, but he recommended a Health Department panel be formed to study the health, economic and legal implications of legalization.
"This is a hotly debated topic. It would be nice to have some facts," Cuomo said.
Tedisco, however, called legalization "a bad idea," though he said he supports the availability of medical marijuana treatment.
"I don't think we should enhance our revenues by letting people buy poison," Tedisco said. "It's a gateway drug."
Advocates like Steck maintain that while he doesn't want to see the use of marijuana become widespread, he believes enforcement of current laws draws too many law enforcement resources that could be used to fight more serious crimes.
Cuomo is also proposing that the state's Environmental Protection Fund continue to be funded at $300 million, and include funding for a 6.5 percent wage increase for "direct care workers," who work with the disabled and often work for non-profits that contract with state agencies that aid the developmentally disabled, mentally ill and drug and alcohol dependent.
The entire budget is now subject to negotiations between Cuomo and legislative leaders.
"Though there are many challenges currently facing our state, I look forward to reviewing the governor’s proposals and working with my colleagues to find creative ways to address these challenges and ensure that New York’s legacy remains one of strong educational opportunity, of social equality, and of vibrant economic promise," said Assembly Majority Leader Joseph Morrelle, D-Rochester.