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October 20, 2008

 

DiNapoli: State Facing Significant Fiscal Challenges

Mid-Year Financial Indicators Reveal Rough Road Ahead

Overall General Fund tax collections were up 11.2 percent midway through New York State’s fiscal year compared to this time last year despite the volatility in the economy, but trends show growth is dropping off, according to a report issued today by State Comptroller Thomas P. DiNapoli. Business taxes have decreased 13 percent compared to last year and the growth in personal income tax is starting to decline.

DiNapoli released his findings in a special quarterly report examining revenue collections based on revenue and spending information from the Comptroller’s Monthly Cash Report. The report noted after a strong start in April, growth in personal income tax collections is decreasing. Total personal income tax collections in the General Fund compared to last year grew a total of 15.4 percent through September, compared to 24.6 percent for the first three months of this fiscal year. The state collected $2.4 billion in General Fund business taxes through September, a decline of $356.7 million or 13 percent, compared to last year.

“The state started the fiscal year with surprisingly strong personal income tax collections that fueled growth in state revenues. But that growth is falling off and things are looking very shaky,” DiNapoli said. “Personal income taxes will likely decline significantly when Wall Street bonus payments drop off in December and January. Then we’ll have a more accurate reflection of the financial challenges facing the state this year and next. But even without the bonus numbers, it’s clear that despite the state’s current year spending reductions, the state faces potentially unprecedented deficits.

“The Governor has made the right call to bring the Legislature back to address the state’s finances. Now is the time to carefully evaluate our priorities and take a sensible, balanced approach. We should not look for quick fixes that could create more problems. New York needs long-term solutions that don’t make an already bad situation catastrophic.”

Among the reports findings:

  • Overall General Fund Revenues: State revenues totaled $29.4 billion through September, up $2.8 billion or 10.6 percent compared to the same period last year, primarily because of higher than expected personal income tax collections. DiNapoli cautions that this growth is primarily due to the settlement of the 2007 personal income tax liabilities.
  • Overall General Fund Spending: The state spent $26.5 billion, including transfers, through the first six months of state’s fiscal year. This was 3.9 percent, or $1 billion, higher than the first six months of last year but below projections. The majority of the growth was from local assistance payments ($677.7 million), which were actually less than expected by $221.3 million.
  • Breakdown of Business Tax Declines: The $2.4 billion the state collected in General Fund business taxes through September was a decline of $356.7 million or 13 percent compared to last year. Corporate franchise taxes were down $248.5 million or 17.6 percent; bank taxes decreased $67.9 million or 12.5 percent; and insurance taxes went down $57 million or 10.8 percent for the first six months. Business tax collections in September were $877.5 million, which is below projections of $1.25 billion. General Fund business tax collections have been below estimates in every month of the current fiscal year, even though projections have been lowered twice.
  • Other Taxes: Other General Fund tax collections of $756.2 million grew by $242.8 million, or 47.3 percent, primarily because of estate tax collections in July. Consumption tax collections, including sales taxes, of $4.4 billion grew less than 1 percent from the previous year.
  • Projected Budget Gap: The Division of the Budget is currently projecting a General Fund gap of approximately $1.2 billion. The Governor has said this gap could be as high as $2 billion. DiNapoli noted that his office had previously identified $1.6 billion in risks and $2.8 billion in non-recurring revenues used to balance this year’s budget. He expressed concern that this gap could increase if the economy continues to deteriorate and other anticipated revenue, such as the sale of Wellpoint stock, is lower than expected.

All Governmental fund receipts totaled $58 billion through September. This is approximately $536 million below projections. Year-to-date tax receipts of $32.4 billion were approximately $77 million over projections, while year-to-date miscellaneous receipts of $8.5 billion were approximately $283 million below projections and year-to-date federal receipts of $17.1 billion were $330 million below projections. Tax receipt collections were over estimates primarily because of strong personal income tax collections in April of this year. However, those collections represent estimated tax collections from the 2007 tax year and are not indicative of current economic circumstances.

Through the first six months of the fiscal year, spending in All Governmental funds increased 7.7 percent, or $4.1 billion, with the majority of the growth in local assistance payments. State Operations spending increased $733 million, or 8.3 percent, while General State Charges increased $96.3 million, or 3.1 percent. Spending for debt service increased 17.6 percent, or $294.7 million, and spending for Capital Projects has increased 12.5 percent, or $312.2 million, compared to year-to-date spending through September 2007.

The state’s finances are generally broken down by two main categories: General Fund and All Funds. The General Fund is the major operating fund of the State and accounts for all receipts that are not required by law to be deposited into another fund. All Governmental Funds includes General, Special Revenue, Debt Service and Capital Projects funds, as well as funds from the federal government.

Click here for the report examining first quarter state revenues.

Click here for a copy of the September 2008 Cash Report, which includes a full breakdown of all revenue and spending for the first quarter.

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