DiNapoli wants more New York State reserves
New York’s next budget should include higher reserve levels to brace for the next economic downturn, according to the state comptroller.
State Comptroller Thomas DiNapoli released an analysis Wednesday noting that while Gov. Andrew Cuomo’s proposed $175.1 billion budget accounts for unpredictable tax revenues, larger-than-expected collection declines underscores the need for a bolstered rainy day fund. An expected tax revenue shortfall of more than $2 billion prompted Cuomo to amend his spending plan in mid-February that includes closing up to three state prisons and imposing an excise tax on opioid sales.
“As lawmakers craft next year’s state budget, they are negotiating under the threat of slower economic growth, volatile financial markets and continuing revenue uncertainty,” said DiNapoli in a statement. “Decisions on the new budget demand an exceptionally high degree of caution, and I encourage the Governor and Legislature to bolster the state’s rainy day funds to better prepare for future fiscal challenges.”
DiNapoli noted that the Cuomo administration is planning to allocate $488 million of unallocated settlement money into the state’s rainy day reserves, marking the first deposit into the fund since 2015. Total general fund reserves are projected to be $6.5 billion at the end of the current fiscal year that ends March 31 before dropping by roughly $1.5 billion in 2020 and by more than $2.5 billion in succeeding years as resources are spent.
“I urge the Governor and the Legislature to make the prudent choice of building these reserves even further to prepare for the inevitable next economic downturn,” said DiNapoli in the report. “Further strengthening of such reserves would help guard against growing risks to the State’s financial plan.”
The Citizen Budget Commission has also urged state lawmakers to build more reserves and restrain spending by limiting school aid increases to the neediest districts. CBC president Andrew Rein wrote in a Feb. 25 report that despite plans to increase rainy day funds, New York is way behind other states with reserves equal to just 2.7% of annual general fund tax revenues compared with 10% in California.
“The revenue shortfall during the average recession would dwarf the State's planned rainy day reserves,” Rein wrote. “Greater reserves are required to mitigate the impacts of an economic downturn.”
Cuomo and DiNapoli held a joint press conference on Feb. 4 warning that New York’s tax receipts were $2.3 billion below forecasts driven largely by federal tax changes capping deductions for state and local taxes at $10,000. The declining revenue prompted the State Division of Budget to reduce tax collection projections for the current and next fiscal year by a combined $5.7 billion from the estimates issued last November, according to DiNapoli’s report.
The Cuomo administration’s updated financial plan estimates tax revenues rising 7.8% for the 2020 fiscal year that begins April 1. DiNapoli noted proposed tax policy changes are slated to net just over $1 billion of revenue gains with the bulk deriving from extending the top personal income tax rate of 8.82% through 2024. The tax, which is scheduled to expire on Dec. 31, would drop to 6.85% for the state’s highest earners absent an extension.
New York’s state-supported outstanding debt and debt service are both projected to jump by an average of 4.7% annually from the current 2019 budget through 2024, according to DiNapoli’s analysis. Cuomo’s budget plan proposes increasing $5.1 billion in bonding authorization for state-supported debt, a 3.4% increase.
New York's general obligation bonds are rated Aaa1 by Moody’s and AA-plus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.