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This is the fourth annual report issued by the Comptroller reviewing the economic and revenue forecasts for the State budget. As in past years, this report focuses on whether the economic forecasts are reasonable, and whether the revenue projections are consistent with the economic forecast, recent collections history, and reasonable expectations of taxpayer behavior. This analysis is not based on an independent forecast for the economy or revenues; it reviews the forecasts published by the Legislature and Executive based on these criteria. This year's report also examines the changing composition and character of personal income and the impact it has had on State revenues.

Improving the Forecasting Process

The revenue forecasting process in New York remains flawed despite a statutory requirement for a consensus economic and revenue report to be released by March 10. Although the revenue estimate differences are smaller than last year, no agreement has been reached and a report has not even been issued.

The inability to reach a consensus on the revenue forecasts may be based, in part, on the recent track record. Revenues and economic performance have exceeded all expectations. Actual receipts exceeded proposed Executive Budget estimates by more than $5.5 billion over the past three years.

The Economy

The legislative and Executive forecasts for the national economy have only small differences other than in their projections for corporate profits.

For the state economy, the differences are more significant and center on wage and employment growth.

Income and Revenue Trends

Tax revenues are increasingly difficult to estimate because of the changing character and composition of personal income. Annual growth in regular wage payments has disproportionately occurred at the middle and upper end of the income distribution due to:

  • Significant growth in bonuses paid by the financial sector to their employees;
  • Increased number and value of stock options exercised;
  • Unusually strong capital gains due to record high stock prices and unlocking of capital gains in response to lowered federal tax rates; and
  • Larger number of individuals investing in mutual funds that make annual taxable distributions.

Analysis of Revenue Forecasts

Revenue estimates for 1997-98 and 1998-99 differ from Executive estimates by between $476 million and $944 million. Although all of the revenue forecasts are achievable there is considerable uncertainty surrounding the components of income that drive the 1998-99 differences.

Disagreements on projected revenues for 1997-98 are minimal, ranging from $100 million to $152 million. The major disagreements are in the business taxes and estate and gift tax collections that the State will receive in March.

The differences in expected revenues for 1998-99 are more significant and range from $336 million to $819 million. At least half of the disagreement is in the personal income tax, and how much will be collected from the withholding and estimated payments tax.

  • The fiscal staff's(1) forecasts vary by up to $323 million in higher wage withholding taxes. The different estimates are a result of wage growth projections that range from 5.0 to 5.8 percent for the fiscal year. Because withholding tax rates increase as income increases, the distribution of wage growth among income classes is contributing to different estimates.
  • The fiscal staff's forecasts vary by up to $305 million in higher estimated income tax payment taxes on non-wage income. The difference in projected capital gains explains over $200 million of the difference in forecasts.


  • From a revenue perspective, the changing character and composition of income is good news, since the income tax is progressive and proportionately more revenue is collected by the State when it is received by higher income taxpayers. However, in terms of stability, the foundation of the much higher tax revenues is the strength in the financial markets. These markets have in the past been volatile and the State's dependence on Wall Street significantly increases the risk in the economic and revenue forecast

1. This report refers to the three forecasts published by the Legislative fiscal committees as "fiscal staff forecast."