Fiscal follies to come?

New York state’s mid-year financial plan update was due on Oct. 31, and state agency heads were scheduled to present their budget requests at hearings last week. But Gov. Cuomo has taken the unusual step of delaying the mid-year report and postponing the agency budget hearings until further notice.

Cuomo’s explanation: “Between Greece and Europe and the stock market going up and down, there has been significant . . . volatility. We want to make sure we have the best possible [projections], because we are going to start making real decisions based on this information.”

That’s a remarkably weak excuse. Sure, the outlook is uncertain. So what else is new? If Cuomo really wants to see the “best possible” numbers for 2011 and 2012, he’ll be waiting all the way to 2013.

In reality, revenue forecasting is as much an art as a science. While projections by the governor’s Division of the Budget aren’t cast in stone, the state’s in-house economists have a track record of predicting the future about as accurately as their counterparts in business and academia.

And DOB has coped with even more uncertainty in the recent past. In fall 2001, the budget agency under Gov. George Pataki managed to issue a financial plan update less than 10 days after the attack on the World Trade Center. In the midst of a full-blown Wall Street panic in fall 2008, with David Paterson barely settled in the governor’s office, it issued its mid-year update two days early. In 2009, as stock-market volatility rose toward record highs, the mid-year report was right on schedule.

The quarterly financial-plan update is no mere bureaucratic formality: It’s a crucial disclosure document, providing a detailed accounting of the state’s progress in meeting key budgetary goals. The mid-year update, in particular, is an indispensable guide to the fiscal trends that will shape the next Executive Budget — which Cuomo must present in January, looking toward adoption by the start of a new fiscal year on April 1.

Nor is the governor entitled to treat the report as optional. The release of a financial plan update, “within 30 days of the close of a quarter to which it pertains,” is required under Section 23 of the State Finance Law.

Cuomo’s delay is a big step backward for financial transparency in Albany. It also has created a built-in pretext for the legislative majorities to delay their own compliance with the state budget “quick start” process.

It’s not as if the governor is trying to hide bad news. The financial outlook, he repeated yesterday, is “grim” — though he still won’t say just how grim.

The state comptroller’s office has already revealed that state tax revenues were nearly $400 million below forecast through September, pointing to further weakness in the year ahead.

Cuomo’s fellow Democrats will use the likely increase in next year’s budget gap — last estimated by DOB at $2.4 billion — to push harder for an extension of the so-called “millionaire tax,” due to expire at the end of this year. But that argument can easily be turned on its head.

New York’s latest budget mess would be much less severe if not for the state’s excessive dependency on the taxes spun off by the volatile incomes of wealthy taxpayers. Most of the sharp decline in state revenue between 2007 and 2009 can be traced to falling incomes of the top 1 percent, who generate over 40 percent of income-tax receipts.

While the state’s mid-year revenue shortfall is concentrated in business taxes, concern about the future is once again focused on upper-income brackets. Capital-gains expectations have dropped sharply since the stock market tumbled in mid-summer; the securities industry is shedding thousands of jobs and the outlook for Wall Street bonuses is down 20 percent to 30 percent. Leaning even more heavily on these guys would be like doubling down on a bad bet.

Cuomo’s first budget kept his promise to close a $10 billion gap with spending reductions rather than tax hikes. But the price he paid was a promise to boost Medicaid and school-aid spending by 4 percent next year — effectively locking higher spending into 40 percent of the state operating-funds budget. That means he must spend less on everything else next year.

The governor’s delay in issuing the financial update feeds a suspicion that he’s working on a new budgetary narrative — something that involves the phrase “due to unforeseen circumstances.” Then again, maybe he’ll redouble his efforts to put state spending on a sustainable path. Either way, it’s time for him to comply with the law and put his latest numbers on the table.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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