The New York State Division of Budget (DOB) recently issued its mid-year update for State Fiscal Year (FY) 2023, showing a continuation of a fairly strong financial condition for the state through next March. And, while the update discusses the potential for a national economic downturn, and the risks it poses for state revenues and spending, it includes only minor changes in projected receipts or disbursements compared to previous financial plan updates.
Highlights of the update include;
“State operating funds” spending (the portion of the budget financed with state-imposed taxes and fees) is projected to fall slightly, by $800 million or 0.6%, to $121.8 billion, compared to the first quarter's fiscal update.
“All funds” spending, including federal funds, is also projected to fall slightly, by $2 billion or 0.9%, to $223.9 billion total.
Total state tax receipts are also projected to go up slightly, by nearly $1 billion or 0.8%, with gains seen in both the personal income tax and corporate franchise tax collections.
The state had $9 billion in reserves at the end of FY 2022 and is projected to add $5.1 billion in the current year and $5.4 billion over the next two fiscal years.
Of the remaining $12.75 billion in federal aid from the American Rescue Plan Act, the state is expected to spend $2.3 billion in the current fiscal year, and the remaining $6 billion in FY 2024 and FY 2025.
New York continues to project that SFY 2023 will close in balance with a slight deficit of $310 million for FY 2024. However, in a sharp change from January 2022 projections, the state expects to see the return of structural budget deficits in FY 2025 of $3.587 billion, rising to more than $6 billion by FY 2027.
New York State Comptroller Thomas DiNapoil recently issued a “Report on Estimated Receipts and Disbursements” as part of the state’s budget preparation process for the new fiscal year beginning April 1, 2023. While echoing some of the same projections as the DOB update, the comptroller’s office is more specific in its projections for an economic downturn in 2023. Mr. DiNapoli projects net state revenues, especially personal income tax receipts, to fall far more significantly next year with projections of almost 20%, or nearly $12 billion, below DOB figures. The Comptroller’s reports are based on a projected general economic slowdown and an expected sharp falloff in Wall Street bonus payments.
Both reports highlight significant uncertainties and challenges in making their forecasts, including the uneven recovery from the COVID-based recession, and significant changes in spending (mostly COVID relief payments) and tax policy (New York’s “Pass Thru entity tax”), that have made revenue receipts particularly volatile. It should be noted these projections also reflect the sunset of a temporary hike in the corporate franchise tax rate for higher-earning entities, scheduled to expire at end of the 2023 tax year. The expiration date for temporary high-earner personal income tax rates is not set to expire until December 2027, beyond the scope of these projections.
New York’s new fiscal year begins on April 1, 2023, and Governor Hochul is required to release her proposed Executive Budget by February 1, 2023.