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Albany Grapples With Budget As Coronavirus Tightens Grip On Economy
By
Fred Mogul
Published Mar 12, 2020
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By
Fred Mogul
Published Mar 12, 2020
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Slowing the spread of coronavirus is the top priority for local, state and federal governments. In Albany, with the state’s fiscal year starting April 1st, the earliest in the country, assessing the impact of the pandemic on the coming year’s budget is a close second.
“The world has changed,” Governor Andrew Cuomo said on Tuesday. “You see what's going on in the stock market. You also have what's going on the economy overall. Conventions are being stopped, tourism is down, hotel bookings are down, restaurants are down.”
In light of the changes, on Wednesday the governor asked State Comptroller Tom DiNapoli to reevaluate the forecast, as international travel restrictions, school closures, and event cancellations have increased, and the stock and bond markets have plummeted. Before the COVID-19 pandemic, the “consensus forecast” from the governor and legislature projected $700 million in tax receipts more than previously estimated.
In the face of all the economic uncertainty, budget watchdogs said negotiations in Albany will be tense, with fiscal conservatives arguing for caution on spending and attentiveness to building rainy-day reserves, and the more progressive camp making the case for reinforcing the social safety net with increased taxes on the wealthy.
“The state's financial picture is based on continued economic growth, and if the economy grows more slowly or actually goes into a recession, we’d expect a significant drop in revenues,” said David Friedfel, director of state studies at the Citizens Budget Commission.
He said talk of a recession might seem premature, but was still worth considering. Many experts suggest states keep about 16 percent of operating expenses in reserve for economic downturns; New York currently has about 3 percent in a rainy-day fund.
“If you look at the past three recessions, the shortfall on average has been about $34 billion over three years,” Friedfel said. “Right now, the state has about $3.5 billion in its dedicated rainy day reserves, about 10 percent of what it would need to fill that hole.”
He and others say New York has an even higher obligation to amass cash reserves than other states, because it’s more vulnerable than they are. About two-thirds of its revenues come from personal income tax -- a higher proportion than many states -- and about 40 percent of those receipts come from wealthy residents, whose portfolios are now tumbling.
“California also relies on the wealthy to pay for a lot of its budget,” said E.J. McMahon, from the right-leaning Empire Center for Public Policy. “But to [former governor] Jerry Brown’s credit, he committed the state to building up its reserves.”
Ron Deutsch, from the more progressive Fiscal Policy Institute, shared his more conservative counterparts’ belief in bolstering rainy-day funds. But he would still like to see increased spending on things like healthcare and education, and he would like to increase taxes on the wealthy to pay for it.
“We should be looking at ways to raise revenue in order to address this potential shortfall, rather than just looking at cutting spending,” he said. “We shouldn’t balance coronavirus concerns on the backs of the poor and those who can least afford it.”
Deutsch is particularly concerned about Cuomo’s demand that the state find $2.5 billion in savings from Medicaid, which is projected to grow more than 7 percent if spending goes unchecked -- a rate the governor says is unsustainable. A blue-ribbon panel he appointed has produced dozens of recommendations, which include insurance tax hikes, cost shifting from the state to localities and service cuts. Cuomo plans to bring these proposals into final budget negotiations with legislative leaders though a coalition of advocates is calling on them to defer any significant structural changes to Medicaid until budget talks conclude.
“I think the governor is looking to kind of tamp down spending expectations,” Deutsch said. “It's a bit early to scream the sky is falling in terms of revenue projections right now.”
Deutsch would like to see a boost to New York’s “millionaires’ tax,” which currently is 8.82 percent for anyone earning above $1 million. An Assembly proposal widely considered dead on arrival in the Senate and the governor’s office, would boost that; people who make $5 million, $10 million and $100 million would pay between 9.32 and 10.32 percent, generating an estimated $2.1 billion.
In New Jersey, Governor Phil Murphy and some legislative leaders are considering boosting the state millionaires tax from 8.97 percent to 10.75 percent for every dollar earned above $1 million.
“They seem to be going in the right direction -- we should, too,” Deutsch said.
That tax hike, however, is far from a done deal in Trenton. And New Jersey has something New York doesn’t: more than three months to meet its budget deadline, rather than three weeks.
Tagged
coronavirus
andrew cuomo
state budget
Fred Mogul
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