DiNapoli Releases Quick Start Budget Forecast
State Comptroller Thomas P. DiNapoli today projected that state business and personal income tax collections will decline sharply this year and next, while the state’s structural imbalance will worsen as the state continues to feel the impact of massive losses in the financial sector. DiNapoli estimates the General Fund deficit could reach $1.6 billion in State Fiscal Year (SFY) 2008-09 and the cumulative deficit for the three-year period, SFY 2008-09 through SFY 2010-11, could exceed $30 billion.
DiNapoli released his mandated report on estimated receipts and disbursements for SFY 2008-09 through SFY 2010-11. By law, the Comptroller, Governor and Legislature are required to separately report by November 5 expected revenues and spending for the current and ensuing fiscal years.
“The numbers are bad, and they’re going to get worse,” DiNapoli said. “The fallout from deteriorating economic conditions -- particularly on Wall Street -- hasn’t stopped. New York is facing deep budget holes and the state’s structural imbalance is worsening. We have to avoid temptation. Budget gimmicks and bad borrowing may look like the easy way out, but those are the kind of wrong choices that helped make a bad situation even worse for New York in the long run. We’re in a crisis, but this crisis is also an opportunity to fix things. First, we need to control spending and make sure we only spend what we have. Every dime counts, and New York is going to have to manage its dimes very carefully over the next few years.”
In last year’s forecast, DiNapoli cautioned that the state was faced with serious fiscal challenges in the year ahead. His 2007-08 forecast warned that revenues were lower than expected and that the state’s reliance on revenue from Wall Street and continued dependence on debt and non-recurring revenues put the state in a precarious position.
The Office of the State Comptroller’s (OSC) estimates for All Funds receipts and disbursements for 2008-09 through 2010-11 compared to DOB’s Mid-Year Financial Plan Update are:
|* (millions of dollars)
Among the report’s projections in All Funds:
- Overall Tax Receipts: After tax receipts grew close to 10 percent in both 2005-06 and 2006-07, tax receipt growth slowed to only 3.6 percent in SFY 2007-08. The growth rate in SFY 2008-09 is expected to slow to just 0.7 percent and become negative in SFY 2009-10 with a decline of 1.4 percent. Receipts are expected to grow by 5 percent in SFY 2010-211 as the economy is projected to recover.
- Personal Income Taxes: In SFY 2008-09, personal income tax receipts are forecast to grow by only $256 million, or 0.7 percent, which is substantially below the prior year’s growth rate of 5.7 percent. For SFY 2009-10, personal income taxes are expected to decline 3.4 percent, but rebound in SFY 2010-11 and grow by 6.2 percent.
- Business Taxes: After rising dramatically in SFY 2006-07 (18.5 percent) and 2007-08 (36.5 percent), business taxes are expected to decline by 6.8 percent in SFY 2008-09. Moderate growth in corporate profits is projected to result in growth of 1.3 percent in SFY 2009-10 and 6.6 percent in SFY 2010-11.
- School Aid: Under current law, school aid is expected to significantly increase over a four-year period. Based on historic data as well as school aid data from September 2008, DiNapoli estimates school aid will be $23.1 billion in SFY 2008-09, which is $94 million lower than DOB estimates. Out-year estimates are $25.3 billion in SFY 2009-10, an increase of 9.5 percent, and $27.6 billion in SFY 2010-11, an increase of 8.8 percent.
- Medicaid Spending: DiNapoli estimates Medicaid spending for SFY 2008-09 at $31.5 billion. This will increase to $34.4 billion in SFY 2009-10 and $36.8 billion in SFY 2010-2011.
In addition to the volatility in the economy, DiNapoli noted several other risks that could adversely impact the state going forward. The state continues to rely heavily on debt and one-shots. Over the last six years New York has used nearly $19 billion in non-recurring revenues to pay for recurring expenses. Nearly 21 percent, or $11 billion (as of March 31, 2008), of existing outstanding state-funded debt was issued to provide budget relief or deficit financing. By SFY 2009-10, debt service will be one of the fastest growing major categories of expenditures ― growing about one-half billion dollars annually.
The structural imbalance of the state budget leads to significant projected structural gaps in each of the next three years with All Funds spending expected to approach $146 billion by SFY 2011-12. Spending growth is dominated by growth in Medicaid and aid to local school districts, which by 2011-12 will reach almost 50 percent of All Funds spending, leaving the remainder to meet all other spending needs.
DiNapoli’s office worked with the University at Buffalo’s Center of Excellence to prepare a revenue forecast model of New York State taxes. In addition, OSC relied on a variety of other data sources to compile the analysis, including ten years of receipts and disbursements data from the state’s central accounting system, and detailed information from state agencies including DOB, Department of Health, Department of Taxation and Finance, State Education Department and Office of Temporary and Disability Assistance.
Click here for a copy of the report.