Governor Hochul’s budget office has yet to release the statutorily required mid-year financial plan update whose data provides the best current snapshot of the state’s fiscal outlook.
Under state law, the document is to be issued “within thirty days of the close of the quarter to which it shall pertain,” meaning by October 30, since the mid-year update covers the fiscal quarter that ended on September 30.
The document contains a wealth of data about the state’s revenue and expenditures, including how they have been impacted by recent macroeconomic and financial market conditions — and the actions of state officials. In other words, it’s exactly the sort of data voters should be well-informed about when they walk into the polling booth next Tuesday.
The numbers in the unreleased update likely reflect grim news. That in part reflects the economic and financial market downturn.
Rising financial markets during the pandemic brought a huge haul into state coffers last year, with state tax revenue from the securities industry spiking 43 percent to $22.9 billion, The industry accounted for 22 percent of total state tax collections, according to a report on the industry issued last month by the State Comptroller. The vast bulk of that revenue came from personal income tax paid by industry employees, including on the highly variable bonuses that comprise roughly half their aggregate pay.
But all good things come to an end.
Despite an eight-percent surge in October, the S&P 500 is still down 19 percent for the year through October. The NASDAQ is down 30 percent, while the Dow is down 10 percent.
To try to tame still-rampaging inflation, the Fed has hiked the Federal Funds rate three percentage points since March, including three consecutive three-quarter point rate hikes. A fourth three-quarter point hike is expected tomorrow. At 3-3.25 percent currently, the Federal Funds rate is already at its highest level since 2008.
The market downturn and steep interest rate hikes have whipsawed New York City’s financial services sector, which has suffered reduced revenues and increased interest expenses. As a result, securities firm profits for the first half of 2022 fell by more than half from the year-ago period, according to the Comptroller. That’s going to down-size end of year bonuses and the tax proceeds they yield.
The state budget seems set to endure a painful withdrawal from the rush of Wall Street-sourced revenue and emergency federal pandemic aid to which Albany leaders recently grew accustomed, especially since they’ve raised the spending baseline during the past few flush years. Indeed, the Governor’s first quarter financial update released on August 1 projected a sea of red ink in the coming years, with deficits exceeding $6 billion by FY 2027.
Yet on August 11, just ten days later, Hochul elected to plunge the state another $10 billion deeper into the red by signing the Green CHIPS legislation (S. 9467) she’d rammed through the Legislature in June, as lawmakers were headed for the exits. That law adds another roughly $500 million per year to the outyear annual deficits.
Most of the $10 billion was quickly pledged to the Micron deal that Hochul heralded at last Thursday’s public event in Syracuse, where she was joined by President Biden, Senator Schumer and local elected officials.
But New Yorkers deserve access to more than ribbon-cuttings. They should be able to see the full impact on the state’s finances of both broad economic and market conditions, and specific policy decisions made by elected officials. That’s one reason why the financial plan updates are required under law — and by a date certain.