Almost all of the newly projected $2.1 billion deficit in this year’s New York State budget can be traced to falling tax receipts.  But rising spending will represent a growing share of the problem over the next three years.  In fact, more than one-third of the projected growth in next year’s gap, and over half the growth in the gap for fiscal 2013, can be traced to spending increases beyond those forecast by the Division of the Budget (DOB) just three months ago.

Assuming no recurring savings are adopted to mop up this year’s red ink, the 2010-11 gap has more than doubled–and projected gaps for the two subsequent years, already large, have become downright humungous:

outyear-table-8240534

This chart graphically depicts how the gaps have widened since April:

q1-chart-compare1-3514416

Note how the gap nearly triples in size between the fiscal years ending 2011 and 2012.  Much of that increase reflects the scheduled expiration of federal stimulus aid; spending temporarily supported by the stimulus will be reclassified into the general fund starting in fiscal 2012.   Note, also, that general fund receipts are projected to hold their own after the scheduled Dec. 31, 2011 sun-setting of this year’s temporary personal income tax increase.

The drop in receipts is easy to explain: personal income taxes and sales taxes, reflecting job losses, a sharp drop in wages and investment income among high-income households, and reduced consumer activity.

But where–and why–is spending growing beyond the projections issued in Aprils?  The growth is concentrated in two categories:

School aid disbursements out of the general fund are up $241 million for 2010-11, a combination of higher aid claims from school districts and a drop in Lottery sales.  The impact of larger aid claims tends to mushroom in later years.  In addition, Lottery aid will be reduced by the Legislature’s failure to approve a Video Lottery Terminal franchise for Belmont Park.  As a result, the baseline school aid projection has been revised upwards by more than $700 million for 2011-12.

Pension contributions for the next three years have risen by a cumulative $2.1 billion.  The Enacted Financial Plan reflected the assumption that pension fund contributions would be capped by “amortization” legislation backed by Governor Paterson and state Comptroller Thomas DiNapoli.   But that bill stalled in the state Senate — and for good reason (even if political pettiness also played a role in its rejection).  So DOB adjusted the financial plan in this area.  It now projects that, in the absence of other action, the employer contribution rate, as a percentage of payroll, could rise from the current 7.2 percent to 24 percent by 2012-13.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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