Amid growing fears that a coronavirus pandemic will severely disrupt the global economy, and with the stock market heading for its biggest weekly losses since the 2008 financial crisis, Governor Cuomo has been oddly quiet about the obvious budget implications.
On Ash Wednesday afternoon, with the Wall Street meltdown in its third day, the governor called a rare State Capitol news conference to talk about the public health implications of COVID-19. The main takeaway: Cuomo will seek a $40 million emergency supplemental appropriation to ensure the Health Department is equipped to deal with the spread of the virus.
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.
Forty million is small change in the context of a $104 billion state operating funds budget, but potentially just the start of something that could get much bigger before it’s over. And obviously the protection of public health must be the governor’s overriding concern.
But aside from that appropriation request, Cuomo in his opening remarks at the news conference made no other references to his impending FY 2021 budget negotiations with the Legislature—even though, with just over a month left in the fiscal year, the annual public budget revenue forecasting conference was on schedule for the following morning.
It was only during the Q&A that veteran journalist Susan Arbetter of Spectrum News’ Capital Tonight managed to point out the elephant in the room:
“Governor since Wall Street implicates the budget, is there any worry that this could have an effect on budget negotiations or revenues?”
A portion of the state’s revenues, as you know Susan, come from the financial industry. To the extent that Wall Street stock markets take a plunge, that’s not good news, right? The increase in our revenues that we are counting this year basically came from financial bonuses. But you know, we know what the numbers are for this year’s budget. We want to plan for this year’s budget. Next year will be next year. So I have no idea what Wall Street is going to be doing. If I did I wouldn’t be in this business, I’d be in another business.
In other words, for all intents and purposes, “nothing to see here folks—please return to your homes.” (He didn’t mention the Wall Street meltdown, taxes, or economic downside risks for the budget in two radio interviews this morning, either)
Coming from a public official who doesn’t normally hesitate to inflate any passing problem into a full-blown crisis when it suits his purposes, this was… strange. After all, Cuomo’s penchant for hype isn’t limited to staging storm-warning media events with snowplow drivers when flurries are in the forecast.
Just a year ago at this same point in the budget process, the governor held an unusual joint news conference with state Comptroller Thomas DiNapoli (someone he usually avoids) to announce a $2.3 billion shortfall in state tax receipts, which turned out to be largely temporary. His purpose was clear: discourage the Legislature from spending too much in FY 2020.
This week’s actual and ongoing Wall Street correction—prices down more than 10 percent within four days—also gave Cuomo a timely golden opportunity to warn with only slight exaggeration that all budget bets were off. After all, as noted in my New York Post op-ed today:
For lawmakers inclined to spend more than Cuomo has proposed, the turmoil on Wall Street should come as a timely and sobering reminder: New York’s tax base is both exceptionally wealthy — and exceptionally fragile.
As a financial capital, New York is more vulnerable than any state to the ripple effects of economic shocks affecting financial markets. The personal-income tax makes up two-thirds of New York’s total state tax revenue, a larger share than in all but a few states. And 40 percent of the PIT is generated by the highest-earning 1 percent of taxpayers, whose taxable income tends to be more heavily correlated with investment gains and market trends.
Unless the market turns around as quickly as it dropped, the coronavirus crash will also affect public pension funds, which remain heavily invested—too heavily invested—in corporate stocks. Just two weeks ago, DiNapoli announced a strong third-quarter performance for the Common Retirement Fund, propelled by “a strong upswing in the markets to close out 2019.” That upswing reversed, and as of this morning the S&P 500 had dipped to roughly its April 1, 2019 level—which would translate into an annual gain of well below the NYSLRS target of 6.8 percent.
So, why has the governor been so quiet on the obvious fiscal angle? Or is he about to emerge from his shell and get noisier and more decisive?
We’ll have a better idea in a few days, since March 1 (Sunday)** is the deadline by which Cuomo’s budget director is supposed to reach (or not) a revenue consensus with the Legislature. The Assembly Ways and Means staff thinks there will be $1.7 billion more in receipts available across this fiscal year and next. The Senate Finance Committee puts the figure at $1.1 billion. Earlier this week, Cuomo himself was publicly alluding to $700 million in unanticipated tax receipts, which he attributed to Wall Street bonuses.
Given the cloudy outlook and downside risks, rather than agreeing to assume any increase in revenues, Budget Director Robert Mujica might find it most prudent to re-issue last year’s statement declaring a non-consensus, and to insist that any revenues above Executive Budget projections be held in reserve. In addition, the Cuomo administration should ask the Legislature to beef up contingency plan budget language empowering the governor to deal quickly with a more severe revenue shortfall if the negative economic impact and expenses of a pandemic add up to a worst-case scenario for the state.
** Which, legally speaking, really means Monday, March 2.