ALBANY – New York may face its first major budget gaps since 2011 as tax revenues are estimated to be less than initially anticipated, state budget records this week showed.
The looming budget gaps could be up to $2 billion in the next two years, which might influence state aid for schools and spending on programs proposed by Gov. Andrew Cuomo.
“This is going to be acid test of his commitment to fiscal restraint,” said E.J. McMahon, president of the Empire Center, a fiscally conservative think tank.
Cuomo came into office in 2011 facing a $10 billion budget gap, which led to cuts in school aid and a pledge to keep state spending to less than 2 percent a year.
The Democratic governor has limited state spending to less than 2 percent each year, but he’s done so by curbing state-agency spending while allowing school aid — the largest piece of the budget — to grow by 5 percent to 6 percent annually in recent years.
The state’s mid-year fiscal report released Monday pledged to keep the 2 percent spending cap — even in the face of a projected $689 million budget gap for the fiscal year that starts April 1.
The report estimated that the budget gaps could grow to $2.1 billion for the 2018-19 budget year and then fall back to $1.7 billion in the 2019-2020 year.
Cuomo will propose his 2017-18 budget in January. Lawmakers have until March 31 to approve a spending plan.
The budget gaps are largely due to a larger-than-expected drop in personal income-tax revenue — $1.2 billion less than the state estimated in March.
Yet the out-year gaps assume the state will end a so-called millionaire’s tax on high-income earners: The top rate is set to drop to 6.85 percent from the current rate of 8.82 percent at the end of 2017.
Cuomo and lawmakers kept higher rates on the wealthy in 2011, but it’s unclear whether they will let the rates expire as planned.
If they keep the higher rates, it would essentially wipe out the looming deficits, because the higher tax brings in about $3 billion a year.
There are other factors impacting the state budget.
Most union contracts have expired, and the state estimated that if the unions all get similar deals, the cost would hit as high as $820 million a year because of pay raises.
The fiscal report also noted the uncertainty over federal policy next year under the new Trump administration.
President-elect Donald Trump, for example, has proposed an overhaul of the Affordable Care Act, the health-insurance program that has more than 3 million enrollees in New York.
State officials estimated last week that a repeal of Obamacare could cost the state about $1 billion a year in federal aid.
“Certain financial projections concerning federal aid, and the assumptions on which they are based, are subject to significant revision in future financial plan updates as more information becomes available about the new administration’s proposals for health care, infrastructure, and other activities,” the report said.