Job losses, declining salaries and a slowdown in consumer spending in New York have opened up a $2.1 billion deficit in fiscal 2010, Gov. David Paterson announced yesterday.
Paterson and Lieut. Gov. Richard Ravitch plan to release a financial plan in September to address both the current-year budget deficit and long-term fiscal health.
“The economic downturn continues to exert a power negative impact on tax receipts on many states including New York,” state budget director Robert Megna said in a conference call with reporters. “Almost the entire shortfall or the entire shortfall of $2.1 billion is due to a reduction in the forecast for tax receipts based on updated economic information and operating results through June.”
Personal income tax collections in the first quarter of the fiscal year that began April 1 fell $584 million below projections to $7.7 billion, a $4.2 billion drop from the first quarter of fiscal 2009, according to a first-quarter report released with the announcement. Sales and use tax collections fell $159 million to $2.6 billion. State wages are projected to decline by 4.8% in calendar year 2009, the largest decline since the state began keeping records in 1975.
In May, just a month after the state's $131.9 billion budget was enacted, the state projected a cumulative four-year deficit of $24.6 billion. Now it projects it will be $13.6 billion worse, totaling $38.2 billion with deficits growing to $18.2 billion by fiscal 2013. Further financial risks include growing public assistance caseloads and increased pension costs.
New York could face a negative cash-flow situation by November, which could prompt it to borrow from existing state education and transportation funds to put cash into the general fund. The state has long had the authorization to do such short-term borrowing for periods of up to one month, but the current year budget authorized short-term borrowings from the funds for up to four months.
“We hope we’re not going to have to use this authority,” Megna said. Such borrowing would not affect spending on programs related to those funds.
Asked whether the state would do a deficit borrowing, Megna said he wouldn’t talk about specifics in the plan that will be developed by Paterson and Ravitch, “but we’re going to try to stay away from tricks and gimmicks.”
Megna said the Division of Budget was looking very aggressively at using taxable Build America Bonds and other bonding programs under the federal stimulus “to see if we could minimize our costs and be very aggressive in terms of how we reduce our debt service costs wherever we possibly can.”
The state plans to market $800 million of BABs next month as part of a personal income-tax bond issue and $192 million of qualified school construction bonds in October.
Ratings downgrades like those that have hit California and Illinois are not a concern for New York, according to Megna.
“We feel pretty comfortable with our ratings and would hope the ratings agencies wold see it the same way,” he said. “While announcing a $2 billion problem is not something we’re happy to do, we think in the context of what’s going on in other states around the country — especially the big industrial states — we think we’re in a good position.”
State Comptroller Thomas DiNapoli said in a statement that New York has not made enough progress toward aligning recurring spending with recurring revenues.
“The governor’s update is a caution sign for New York: the state needs to take action,” DiNapoli said, adding that the governor and the Legislature “have to look at the real and difficult choices necessary to solve New York’s bad habit of spending money we simply don’t have.”