New York's budget deficits likely to grow, state officials warn
By Tom Precious
- NEWS ALBANY BUREAU
Updated: 05/02/08 4:02 PM
ALBANY — The state will enter a recession in the next month, budget officials warned Thursday, a financial downturn that will contribute to worsening state budget deficits.
Hardest hit will be the financial and insurance industries, where 30,000 job losses are expected in the next year.
“We’re concerned the worst is yet to come for New York,” said Laura Anglin, Gov. David A. Paterson’s budget director.
During a briefing with reporters, Anglin acknowledged a “grim” assessment of the state’s economy and would not rule out some sort of midyear “correction” in this year’s budget, which was adopted only last month. Such prospects have made schools, local governments, hospitals and others that rely on state funding increasingly worried.
The Paterson administration now forecasts sharply lower employment growth — a near-stagnant level of just 0.1 percent this year compared with 1.5 percent last year — as well as much lower wage growth of just 2.7 percent, compared with 8.3 percent last year.
The state traditionally lags behind the nation in coming out of a recession. While economists disagree whether the economy is in a recession, state budget officials say they believe the United States fell into a recession in December and the economy will begin to recover in July. But they also say the state only now is entering a recession and won’t come out of it until some time next year.
For taxpayers, the implications are enormous. The shaky economy is helping to blow a hole in state finances in future years. If every program currently provided by law is funded, the administration projects next year’s budget already faces a $5 billion deficit, followed by $16.5 billion in deficits in the following two years.
Fiscal watchdogs, though, say Paterson and lawmakers have made prospects for future years worse because the budget approved a month ago contained so many new spending commitments.
“It’s been clear since last summer the economy was going down and nothing was done about it,” said E. J. McMahon of the Empire Center for New York State Policy, a conservative think tank. But he praised Paterson for recently saying the state will look for major spending cuts in the next budget and for ordering state agencies to hire only those workers deemed most essential.
The worst projections, Anglin said, include revenues from capital gains, which reflect activity on Wall Street, the real estate market and the sale of businesses. This year, realized capital gains are expected to fall nearly 16 percent after rising 15 percent last year. Officials say each percentage point decline translates into a loss of about $1 billion in taxable income.
The last five recessions averaged 11 months nationally, but 25 months in New York, in part because of the sectors hardest hit.
Budget officials now predict a shorter, less severe recession than the last one, which hit the state in 2001.
Officials project the state fiscal year will end next March 31 in the black, but they won’t make any guarantees.
The worst prospect, last encountered in the early 1990s, would require midyear budget cuts. That, for instance, could reduce funding for schools too late in the year to make up the loss with higher property taxes, forcing a cut in programs.
Next year, to cover spending already on the books, the budget would need to rise 10.2 percent. (The budget this year went up 5 percent, nearly double the projected inflation rate at the time.) But revenues are projected to rise only 2.7 percent, resulting in the $5 billion deficit.
Anglin said Paterson has ordered state officials to look for ways to cut spending. But he has not ruled out tax increases to balance next year’s budget.
McMahon said the state faces deficits because of spending problems, not because of a slower economy. For too long, he said, officials have relied on the rush of tax revenues from a healthy economy to pay for more spending.
“What they have to focus on is what they can control, which is an out-of-control budget,” he said.
