For the first time since taking office 10 years ago, Governor Cuomo has met the statutory deadline for producing a Mid-Year Financial Plan Update. As in most previous years, however, the report actually “updates” very little, raising as many questions as it answers.
The main mid-year takeaways promoted by the accompanying press release from Cuomo’s Division of the Budget (DOB) were “a $14.9 billion General Fund revenue decline and a 15.3 percent All Funds tax receipts decline from the Budget forecast released in February, creating a total loss of nearly $63 billion through FY 2024 as a direct consequence of the COVID-19 pandemic.”
These numbers—while accurate—are nothing new. They also are misleading: the current budget hole is, at most, $8 billion, and since the state budgets only one year at a time, multi-year differences in future revenues as projected back in February are not meaningful.
In fact, buried in the 432-page report issued Friday afternoon by Cuomo’s Division of the Budget (DOB) is a slightly improved economic forecast for the current fiscal year, compared to projections in DOB’s First Quarterly Update back in August.
In the most significant change since the August plan update, personal income in New York State during this fiscal year is now projected to increase by 2.3 percent—a 3.6 percentage point swing from the previous forecast of a 1.3 percent decline. This was chalked up in part to better-than-expected stock market performance since the first quarter, which led to an increase in predicted bonus payments to New York-based financial sector employees. Every percentage point change in New Yorkers’ personal income equates to about $14 billion, so the revised forecast adds about $50 billion to the tax base.
The Mid-Year Update also slightly improves the statewide wage forecast for this fiscal year, to a decrease of 5.4 percent from the original forecast of -6.3 percent, although the projected change in nonfarm employment was downgraded, from -8.8 percent to -10.1 percent, which is consistent with the state’s still-sluggish employment recovery from the pandemic-driven business shutdowns and restrictions. The report said it will still be “several years” before private-sector employment in New York recovers to pre-COVID levels.
Despite the improved income and wage forecasts—and even though tax receipts through September exceeded DOB’s Q1 forecast by about $1 billion, further supporting the improved personal income forecast—the Mid-Year Update makes no change to the tax revenue projection for FY 2021, or for the three following fiscal years covered by the plan.
The financial plan still includes what amounts to a recurring annual $8 billion placeholder labeled “Budget Balance Reduction” in the category of local assistance spending, but no longer includes a similar lump-sum assumption of $1 billion a year in reductions on the state operations category, which was included in the last two financial plans for this year.
Instead, a combination of relatively small changes to the disbursement projections results in a projected FY 2022 budget gap of $16.7 billion, compared to the previously projected gap of $17.4 billion. Neither number assumes recurring adoption of $8 billion in recurring budget reductions. Cuomo has yet to pull the trigger on those cuts.
The DOB press release issued with the update highlights $4.3 billion in reduced spending, compared to the first half of FY 2020, “done by freezing hiring, new contracts and pay raises, and temporarily holding back 20% of most [local aid] payments.”
These reductions have been mostly temporary, however. With less than half the fiscal year left, the governor continues to (literally) bank on his hopes for a Biden victory in the presidential election, coupled with a Democratic takeover of the U.S. Senate. Assuming that happens, Cuomo (not without reason) expects to produce a big infusion of federal aid to cover the still-enormous hole in his current budget, plus a large portion of the gap for FY 2022.
What if President Trump is re-elected, or a President Biden has his state and local aid proposals thwarted by a still Republican-dominated Senate? In that case, said Budget Director Robert Mujica, “The only alternatives to federal funding are spending reductions – a devastating impact on schools, hospitals, police and fire departments, along with other critical services – long-term debt and revenue raisers that may impact our competitiveness and weaken New York State’s ability to lead the national economic recovery as producer of 8% of national GDP.”
As explained here last month, the actual size of the current-year budget hole is less than $8 billion if some offsetting federal Coronavirus Relief Fund aid and other spending reductions are included. Cuomo also has discretion to roll over $4.5 billion in short term cash-flow borrowing for one more year, and the FY 2021 closing fund balance, including statutory reserves, is projected at $7.2 billion.
But the key bottom-line number remains daunting: the projected FY 2022 budget gap of $16.7 billion, with a state operating funds revenue base projected to total $12 billion less than in FY 2020, including tax revenues that still are not projected to recover to pre-pandemic levels until FY 2024.
Now that Cuomo has actually issued a Mid-Year Update on time for the first time, his next budget-related reporting deadline is Nov. 5, when the so-called “Quick Start” provision of the 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 the comptroller has met this deadline.
The mid-year update from the NYS Budget Division adds another $1.2B to estimated federal Medicaid funding for FY21. The new total of $49.1B is 2% more than the Q1 estimate, 11% more than the enacted budget and 20% more than FY20. https://t.co/JjPIjrDMUl
— Bill Hammond (@NYHammond) October 30, 2020
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