New York state is facing signs of increasing fiscal challenges, including lower revenue targets and possible federal budget and tax changes, according to a report on the state's Enacted Budget Financial Plan issued today by New York State Comptroller Thomas P. DiNapoli.
"The state's fiscal outlook is clouded because of uncertainty in Washington, falling revenues, and fiscal practices that obscure the level of spending," DiNapoli said. "If revenues continue to fall short, projected out-year budget gaps may grow further."
DiNapoli's report found the state Division of the Budget estimates state tax receipts will increase by 4.8 percent in State Fiscal Year (SFY) 2017-18, below the 6.1 percent projected in February. Personal income tax receipts in the first quarter of the fiscal year were $1.7 billion lower than February projections and $1.5 billion lower than what was collected in the same period last fiscal year.
The state faces substantial reductions in federal aid for health care and other programs if proposed changes in Washington occur. Currently, the Financial Plan projects federal grants to increase 2.2 percent this year, reaching $56.6 billion and accounting for more than one in every three dollars in the state budget. The Enacted Budget creates a process to address potential reductions in federal aid. However, it is unclear how this provision would impact the state budget as well as service providers and individuals who depend on state funding.
The General Fund balance as of March 31, 2017 was $7.7 billion, with settlement money representing more than two-thirds of the total. By the end of the current fiscal year the balance is expected to be one-third lower than its recent peak of $8.9 billion two years earlier.
Through March 31, the state has spent $3.1 billion from settlements received in the last three fiscal years, of which nearly half has been used for budget relief. Another $461 million of these one-time resources is expected to be spent for budget-balancing purposes this fiscal year. The state is also using settlement funds for cash flow and debt management purposes. Use of settlement resources for such purposes can obscure the state's underlying fiscal position.
DiNapoli noted the projected out-year budget gaps for the next three years total $17.4 billion, an increase of nearly $11.2 billion from estimates in this year's Executive Budget. Often the state relies on temporary or non-recurring resources, such as settlements, to close budget gaps. For instance, this year the state is using $4.8 billion in temporary and non-recurring resources, excluding federal funds, for this purpose.
Other findings in the report:
- The Financial Plan indicates that spending from State Operating Funds will rise 2 percent this year, to $98.1 billion. This figure reflects several actions that complicate the picture of year-over-year spending growth, such as: the use of prepayments; certain program restructurings which result in costs being reflected as reduced receipts rather than disbursements; shifting spending to capital projects funds; deferring expenditures to future years; and the use of off-budget resources to pay for certain program costs. Adjusting for such actions, the increase in State Operating Funds spending is approximately 4 percent.
- No deposits to rainy day reserves were made in SFY 2016-17, and none are projected in the current fiscal year. Reserves represented more than 13 percent of General Fund disbursements in SFY 2015-16, primarily because of settlement revenues, but are projected to decline over five consecutive years to less than 4 percent by SFY 2020-21.
- Over the five-year Capital Plan period, annual capital spending is projected to total $69.2 billion, $5.7 billion more than the total projected in the SFY 2016-17 Enacted Budget Capital Plan. Compared to the previous decade, transportation is expected to represent a smaller share of total capital spending in coming years, with larger proportions going to economic development, mental health, health and social welfare.
- Debt capacity for State-Supported debt under the state's statutory cap is projected to decline to $82 million in SFY 2020-21, before rising to $490 million the following year.
- State-Funded debt outstanding is projected to rise 4.1 percent this year, to $63.9 billion, and to reach $73.7 billion by the end of the Capital Plan period. State-Funded debt service is expected to approach $8.4 billion as of SFY 2021-22, reflecting an average annual increase of 3.1 percent over the coming five years.
DiNapoli's office issues regular reports on state finances and provides an update on the state's cash position every month identifying state revenues and spending from the prior month.
For access to state and local government spending, public authority financial data and information on 130,000 state contracts, visit Open Book New York. The easy-to-use website was created by DiNapoli to promote transparency in government and provide taxpayers with better access to financial data.