“Changes in the timing and structure of financial services sector compensation, which have resulted in lower than expected personal income tax [PIT] revenues” led to a $1 billion state PIT shortfall in January, which in turn has helped add $750 million to the projected state budget gap for fiscal 2010-11, Governor David Paterson announced today.
In other words, Wall Street has not come to Albany’s rescue.
Opponents of Governor Paterson’s proposed mid-year budget cuts last fall were buoyed by hopes that financial sector bonuses would prop up the state’s finances for at least a while longer. They were wrong. Firms like Goldman Sachs decided to award some bonuses this year in the form of stock options, which won’t be fully exercised (and thus taxed by Albany) for years.
Paterson was already planning to push $500 million of the current year deficit into next year, contributing to a $7.4 billion budget gap that his 2010-11 Executive Budget was designed to close with a mix of spending restraint and tax increases. Now that gap has grown to $8.2 billion. Paterson said his 21-day budget amendments, to be released next Tursday, will include proposals for closing the additional hole.
The net added 2010-11 shortfall of $750 million consists of these elements:
- A revenue drop of $550 million through the end of 2010-11, including the recurring elements of a $1 billion shortfall in PIT collections in January, which was expected to be the biggest bonus payment month.
- Additional Medicaid expenditures of $400 million due to higher-than-expected Medicaid enrollments.
- Offsetting savings of $200 million in “areas outside Medicaid.”
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