DIVISION OF THE BUDGET
ELIOT SPITZER, GOVERNOR
10/30/07 CONTACT: Jeffrey Gordon
MID-YEAR UPDATE TO THE STATE FINANCIAL PLAN
The Division of the Budget today released its Mid-Year Update to the State Financial Plan. This Update presents revised revenue and spending projections for the 2007-2008 to 2010-2011 fiscal years. These estimates were last updated in July at the end of the First Quarter of the 2007-2008 fiscal year.
The Mid-Year Update reflects the impact on the budget of weakness experienced in the financial services and real estate sectors, and the fact that the state is entering a period of much slower economic growth than it experienced over the last four years as part of a national economic slowdown.
The Mid-Year Update reflects the Division of Budget’s view that spending in the 2007-08 fiscal year will be lower than forecast at the time of the Enacted Budget and the First Quarter Update. However, lower spending will be more than offset by lower revenue, according to the Division of Budget.
The Division of the Budget has lowered its tax revenue forecasts substantially, particularly for personal income tax collections. These have been revised downward by $500 million for 2007-08 and $650 million for 2008-09, due in large part to a projected decline in the growth rate for bonuses paid by financial services firms.
While the budget is projected to be in balance for the current fiscal year, the General Fund budget gap for 2008-2009 has been revised upward by roughly $651 million to $4.3 billion from the $3.6 billion gap projected in July. This increase largely reflects the impact of the current economic slowdown and problems in the financial services and real estate sectors on revenues, which more than offset lower spending than previously forecast. In January, Governor Spitzer will release a balanced Executive Budget that closes this potential gap.
The 2009-10 and 2010-11 gaps are also projected to be higher than initially estimated in July by an average of $1 billion each, totaling $6.2 billion in 2009-10 and $7.9 billion in 2010-11.
Director of the Budget Paul Francis noted that New York State receives about 20 percent of its revenues from Wall Street directly or indirectly, and the recent turbulence in this sector attributable to serious problems in the the subprime mortgage market is expected to have a major impact on the budget.
“While the State has been bailed out of impending budget gaps by higher than expected revenues for most of the last 12 years, all indications are that this year will be different. We should always make tough but necessary choices in our budgets, but this Mid-Year Update makes clear that this year we will have no choice but to do so,” Francis said.
2007-08 Fiscal Year
- State Operating Funds: The 2007-08 estimate for State Operating Funds spending, which reflects all state-financed spending with the exception of long-term capital investments, is projected to total $77.9 billion, a $725 million decrease from the July projections. State Operating Funds spending is projected to increase $4.4 billion or 6.1 percent from 2006-07. This compares to long-term estimated personal income growth of 5.3 percent. Capital spending is projected to total $6.7 billion, an increase of $1.2 billion from 2006-07.
- General Fund: General Fund spending is projected to total $53.7 billion, a $326 million decrease from the July projections. The General Fund is expected to end 2007-08 with a balance of $2.8 billion, a decrease of $283 million from the ending balance projected at the end of the First Quarter. The decrease reflects the use of $250 million in debt reduction reserves, which will be used to retire high interest debt and will save the state $380 million in future debt service costs, and $33 million in general reserves to maintain budget balance in the current year. General Fund spending is projected to increase $2.1 billion or 4.0 percent compared to 2006-07.
- All Funds: All Funds spending is projected to total $118.6 billion, a $1.8 billion decrease from the July projections. This decrease reflects lower than expected spending for Medicaid, capital projects, the State University, and a number of federal aid programs. All Funds spending is projected to increase $5.8 billion or 5.2 percent from 2006-07.
2008-09 Fiscal Year
For the 2008-09 fiscal year, the $651 million increase in the projected General Fund gap reflects a $602 million downward revision in revenues and the need to set aside $405 million in reserves for certain risks, including the settlement of labor contracts with State employee unions. A tentative deal was announced yesterday with the Civil Service Employees Association and negotiations with other unions are ongoing. These reserves were previously applied to reduce the outyear gaps. These costs are only partially offset by the reduction in projected Medicaid spending growth and a number of other, more modest spending revisions.
Revenue revisions for 2008-09 mainly reflect projected decreases in financial services bonuses related to turbulence on Wall Street, leading to $650 million in lower than anticipated Personal Income Tax collections, and slower than expected growth in the Corporate Franchise Tax due to lower than anticipated revenue from loophole closures enacted in the 2007-08 budget.
- State Operating Funds: With no changes to current state services, State Operating Funds spending is projected to total $84.3 billion, an increase of $6.3 billion or 8.1 percent from the mid-year estimate. This compares to New York State personal income growth of 5.3 percent. Capital funds are projected to increase to $7.8 billion from $6.7 billion.
- General Fund: The General Fund budget is projected to total $59.2 billion, an increase of $5.5 billion or 10.3 percent from July projections.
- All Funds: The All Funds budget is projected to total $127.5 billion, an increase of $8.9 ;billion or 7.5 percent compared to 2007-08.
The Budget Reform Act enacted in January 2007 reinstituted and expanded the long-dormant “quick start budget process” to require each house of the Legislature, the State Comptroller, and the Executive to separately prepare detailed reports containing multi-year cash projections of receipts and disbursements by November 5 of each year.
This Mid-Year Update fulfills the Executive’s requirement to issue a comprehensive public report by November 5, providing all the information needed to meet the law’s minimum statutory requirements, as well as a substantial amount of additional data to help support analysis by the other parties and the general public. The forecasts contained in the Mid-Year Update are intended to provide a basis for the initial “quick start” discussions with the Legislature, and will serve as the foundation for the formulation of the Executive Budget for 2008-09. A consensus report on the budget projections is due from the Assembly, Senate, and Division of Budget on November 15.
A copy of the full report can be found on the web at: www.budget.state.ny.us.