State tax receipts in the month of December came in $1.4 billion above the latest projection by Governor Cuomo’s Division of the Budget (DOB), according to a cash report released late today by state Comptroller Thomas DiNapoli’s office.

DiNapoli’s release on the numbers accentuated the negative: that receipts in December were down $2.5 billion from a year earlier. But the numbers also supported the comptroller’s recent forecast that total receipts for the year will be $3.8 billion higher than the total in DOB’s last financial plan—which means the 2021 state budget gap, last officially projected at $8 billion, will be no more than half as large.

All funds state tax receipts in December were $8.4 billion, compared to $7 billion in Cuomo’s cash flow outlook, the comptroller’s December cash report showed. Also in line with the comptroller’e estimates, most of the unanticipated increase was in the category of personal income taxes (PIT), the state’s largest single revenue source, which totaled $4.8 billion, compared to the $3.8 billion in DOB’s cash flow outlook.

Despite the COVID-19 recession and an end-of-year uptick rise in statewide unemployment claims—with more than twice as many New Yorkers collecting unemployment insurance as there were a year earlier—the December PIT number was the strongest in three years, 13 percent above the 2019 total for the month. The bulk of that increase came in the payroll withholding category. This reflected an added withholding period in the December 2020 pay cycle, DiNapoli said, but the continued strength in PIT collections also reflects increases in taxable salaries and bonuses among workers who either are deemed “essential” or who have continued to work from home during the pandemic. Consumption taxes came in at $1.7 billion, about 6 percent below the 2019 level but much stronger than the $1.1 billion the governor’s plan had forecast, while business taxes (more likely to be affected by timing quirks) were about $200 million below forecast.

The bigger picture

Add the higher taxes to other categories of federal aid, including at least $4 billion in education funding for New York in the December federal stimulus bill (the one President Trump threatened to veto, remember?), and it seems increasingly likely the state has no budget gap at all for the current fiscal year, which ends March 31. Assuming DiNapoli’s revenue projections hold true through fiscal 2022, the size of next year’s budget gap is $12.6 billion, before counting any added federal assistance that is sure to be forthcoming from the new Biden Administration.

How much isn’t yet clear, and won’t be clear when Governor Cuomo presents his Executive Budget on Tuesday, the day before Biden takes the oath of office.  However, absent a partisan congressional logjam right at the start of Biden’s term, federal aid within the next month is likely to close a considerable portion of the gap.

Biden on Thursday unveiled a $1.9 billion proposal that would include $350 billion in aid to states and local governments. Details were lacking, but assuming conservatively that the state-local split is 50-50, (although states probably get more like two-thirds), and assume that the state-only money is divvied up on the basis of population, New York’s share would come to about $9 $11 billion—not counting other categorical aid streams also proposed by Biden.

Because Democrats only have narrow congressional majorities and will need Republican votes to pass such a large bill, the final sum will probably be smaller. But even a smaller amount of state and local aid than Biden has initially proposed will probably send more to New York than Cuomo had reason to expect before Democrats captured control of the Senate via their pickup of both Georgia seats on Jan. 4. The governor at his briefing today continued to hammer away at this claim that the federal government effectively owes New York at least $15 billion in aid, which he said was half of the “theft” committed by the state and local tax cap in the 2017 federal tax bill passed by congressional Republicans (which, as noted here, actually reduced New Yorkers’ total taxes, despite the SALT cap).

While much of the state budget outlook remains unsettled, this much is clear: in the short term, New York’s budget situation is not nearly as dire as Cuomo has made it out to be.  In the long term, however, the pandemic-induced economic slump and its impact on revenues has opened a structural deficit of about $10 billion to $12 billion in the state budget, based on previous spending trends. This is at least as bad as the gap opened by the Great Recession of 2008-09. Any federal aid forthcoming in the next month or so, even the $15 billion Cuomo has demanded, will be just a band-aid on the deep wound left by the coronavirus shutdown and lingering restrictions on normal economic activity and social life.

It’s clear that both of the Democratic supermajorities in the state Legislature are inclined to embrace a “tax the rich” agenda as their very first response to any shortfall. So the question remains: will Cuomo, who closed a $10 billion gap in his first budget as governor a decade ago, show any stomach at all for the kind of multi-year spending reductions needed to balance the budget without tax hikes once the Biden bailout has been spent? We might (or might not) see some inkling of the answer on Tuesday.