“Hope for the best and prepare for the worst” is a favorite saying of Governor Cuomo, who has rolled it out again to describe how the state will deal with the Coronavirus.
But when it comes to the revenue forecast underlying the next state budget, Cuomo effectively is hoping for better and preparing for more of the same.
This is an installment in a special series of #NYCoronavirus chronicles by Empire Center analysts, focused on New York’s state and local policy response to the Coronavirus pandemic.
The more laid-back approach is reflected in Sunday’s Consensus Forecast Report, in which Budget Director Robert Mujica and legislative fiscal committee staffs agree that revenues for fiscal 2020 and 2021 will be a combined $700 million higher than forecast last month in Cuomo’s FY 2021 Executive Budget.
If the Coronavirus disruption had not developed over the past few months, that might be seen as a conservative number. At least a quarter of the $700 million in projected new revenues is already in hand, based on January tax receipts that came in $170 million above the cash-flow projection in the governor’s budget. As usual, the Legislature began the consensus-building process with higher revenue estimates than the governor’s Division of the Budget: $1.1 billion from Senate Majority Finance, and $1.7 billion from Assembly Majority Ways and Means.
But all of those forecasts predated the full brunt of last week’s bad news about the spread of the Coronavirus outbreak and the meltdown in the stock market, which experienced its most rapid correction (a drop of at least 10 percent in major indexes) since the 2008 financial crisis. The big question now is whether the correction, with or without a worst-case viral pandemic, will turn into a deeper and more prolonged bear market and recession.
The Consensus Forecast Report acknowledged there are “multiple and elevated risks to the economic outlook,” including “an exceedingly significant downside risk” stemming from the spread of the Coronavirus. On the other hand, the same paragraph in the report states “a quick resolution of the Coronavirus outbreak” could lead to a stronger rebound.
In any year, under any circumstances, adding $700 million to the revenue estimate is like tossing chum into an Albany pool full of hungry legislators and interest groups—not a great idea right now, given the added downside risks.
But if the governor truly means to abide by his 2 percent self-imposed spending cap, the $700 million can’t be spent on anything. Given the exceptionally shaky economic outlook, the most prudent course would be for Cuomo to follow up the consensus report by announcing the added $700 million—if it actually materializes—will be put in reserves. That’s what he did this time last year; if he hadn’t, he’d be facing an even bigger problem than the multi-billion dollar Medicaid deficit.
As state Comptroller Thomas DiNapoli keeps warning, the state needs to build up its comparatively low rainy-day funds. “As the financial capital of the world, New York is particularly sensitive to economic downturns, which can put a significant strain on our budget,” the comptroller said back in December. And now the threat of a downturn is larger than it’s been in several years.