New York State’s tax receipts in the current fiscal year will exceed Governor Cuomo’s latest projections by $3.8 billion—still down from last year, but a big improvement over the governor’s worst-case scenario—according to updated estimates from state Comptroller Thomas DiNapoli’s office.
DiNapoli’s revenue projection isn’t simply speculative; it’s grounded in actual tax collections through September, which were a not-insignificant $1.1 billion above the amount most recently projected by Governor Cuomo’s Division of the Budget (DOB). The comptroller’s office also projects that state revenues will exceed the latest DOB projections by $4.1 billion in fiscal 2022, which begins next April 1, and $3.5 billion in fiscal 2023.
Personal income taxes account for roughly two-thirds of the added revenue projected by DiNapoli, or $2.4 billion this year, with the rest coming from sales and use taxes.
If DiNapoli’s report is right, the state’s current-year budget gap is barely half the $8 billion reflected in DOB’s Mid-Year Financial Plan update last week. The remaining gap of $4.2 billion is, if anything, probably smaller since DOB has yet to detail the net budget savings generated by $5.1 billion in federal Coronavirus Relief Fund aid sent to the state under the CARES Act last spring.
Projecting further ahead, DiNapoli’s estimate implies the budget gap for fiscal 2022 is $12.6 billion, rather than the latest DOB projection of $16.7 billion. The reduced out-year gap is still a massive problem, by historical standards, to be sure—but a $4 billion improvement is a big number even by New York budget standards.
Basis for hope
What makes the comptroller so optimistic? A key explanatory paragraph from DiNapoli’s report:
While employment counts and other indicators of economic activity reflect ongoing impacts from the COVID-19 pandemic, and such impacts are expected to continue for some time, certain indicators are currently more positive than may have been expected earlier this year. The State’s overall tax revenues through September were $1 billion higher than (the Division of the Budget’s) April forecast and $1.1 billion higher than its projection in the First Quarterly Update issued in August. In May, DOB projected U.S. GDP would decline by 5.7 percent in 2020, and IHS projected a drop of 7.3 percent; as of October those forecasts had improved to declines of 3.6 percent and 3.5 percent, respectively. In May, DOB projected New York personal income would rise by 0.8 percent while IHS forecast a 0.1 percent decline; their October projections reflected growth of 2.3 percent and 5.3 percent, respectively.
Since the economic crash in March and April, New York ‘s private-sector job base has been recovering much more slowly than the national average. However, the uneven impact of the severe COVID recession on different types of workers has preserved more of the state’s tax revenues than originally expected. Again from the comptroller’s report:
While New York has regained fewer than half of the 1.9 million jobs lost in March and April, lingering employment losses are disproportionately in sectors with comparatively lower average wages. Because of this, the impact on tax revenues from reduced employment is less than would be expected if job losses were concentrated in higher-paying industries, including those where bonuses are part of the compensation mix.
The significant improvement in DOB’s personal income and wage forecast was duly noted in last week’s Mid-Year Update, which did not otherwise change the revenue projection issued with the First Quarterly Update in August. Unmentioned by the comptroller, but alluded to in the Mid-Year Update: that improvement in projected personal income and wages has been driven in large part by Wall Street’s surprisingly strong recovery since the spring, which in turn will boost investment firm profits and bonus payments.
Cuomo has known since the budget’s adoption in April that the pandemic-driven restrictions on normal economic activity and social life were likely to depress state revenues by up to $10 billion below the fiscal 2020 level—a problem he insisted the federal government would have to solve for him. In case federal aid didn’t flow soon enough, the budget included a provision giving Cuomo unprecedented discretion to unilaterally reduce state spending to cope with the shortfall. To date, however, Cuomo’s claimed budget savings of about $4 billion have been achieved mainly through temporary spending slowdowns, including a delay in scheduled pay raises for state employees. He also issued $4.5 billion in short-term revenue anticipation notes, which DOB says it will redeem before the end of this fiscal year.
For much of the summer, into fall, the governor assumed there would be bipartisan congressional agreement on a new federal stimulus bill including unrestricted aid to state and local governments. When that didn’t materialize, his hopes turned to the widely predicted Biden victory and blue wave takeover of the Senate and House. Instead, while not final, the national election result at this writing is shaping up as a narrow Biden win, and a significant reduction in the House Democrats’ majority.
Political control of the U.S. Senate is likely to be determined by the outcome of early January runoff elections for both of Georgia’s Senate seats. No doubt with that election in mind, Majority Leader Mitch McConnell is now saying he wants to pass a stimulus bill in a lame-duck session in December; in that case, if House Speaker Nancy Pelosi is willing to make a deal, the final bill is likely to include at least some of the unrestricted state and local budget aid that the Senate’s Republican fiscal hawks previously had blocked—with inevitable short-term benefits for New York. But, still, Cuomo cannot count on that happening.
Not so “quick” start
The comptroller’s revenue and disbursement estimates report was filed yesterday—the annual Nov. 5 deadline by which the so-called “Quick Start” provision of the Budget Reform Act of 2007 (Section 23.5 of State Finance Law) requires “appropriate personnel” for the governor, comptroller and legislative leaders to “separately prepare and make available reports on estimated state receipts and state disbursements for the current and ensuing fiscal years.”
In recent years, only DiNapoli has met this deadline—which the Legislature has routinely ignored. Next up: by Nov. 15, the same law requires representatives of the governor, the Legislature and the state comptroller to hold a public meeting “for the purpose of jointly reviewing available financial information to facilitate timely adoption of a budget for the next fiscal year,” which begins April 1.
That deadline also has been annually ignored by the Legislature and Governor Cuomo for years now.