New York State’s Mid-Year Budget Update
About two weeks ago, the Citizens Budget Commission issued a blog highlighting six important questions about information in the Mid-Year Update to the Fiscal Year 2017 Financial Plan to be issued by Governor Andrew Cuomo. The Update was released after its due date, but nonetheless, it is now possible to answer those six questions.
- Are revenue projections down again?
Yes – All Funds tax revenue projections for fiscal year 2017 continued their decline. These revenues are down another $739 million from the first quarter update for a total drop of $1.4 billion from the adopted budget. However, collections are still estimated to increase 1.6 percent over fiscal year 2016. Estimates for fiscal year 2017 personal income tax revenues—the largest and most volatile source of tax revenues—are down $775 million from the first quarter update and $1.4 billion from the adopted budget, although annual growth of 2.2 percent over fiscal year 2016 is still expected. All other taxes were virtually unchanged from the first quarter update.
- Is economic development spending reduced?
Yes and No – Despite recent corruption charges against top state officials over economic development projects and lack of appropriate performance measures for these programs, there is no change to economic development oversight outlined in the Update. However, spending during the first six months was below the adopted financial plan, which may be indicative of additional controls. Annual projections for fiscal year 2017 and beyond remain unchanged.
- What is the full impact of collective bargaining agreements?
The Mid-Year report increased personnel costs in fiscal year 2017 by $75 million to account for the recently settled Public Employees Federation (PEF) contract. The report did not include funding for other employees if the PEF contract sets the pattern for all other outstanding collective bargaining agreements; however, it does identify those costs: $270 million in fiscal year 2017, growing to $820 million in fiscal year 2020. The Update does not include information on how PEF and the State would work together to reduce employee health insurance costs, which the Governor cited as a key provision of the agreement.
- Can Medicaid growth continue to be restrained?
Yes - Medicaid spending subject to a statutory cap remains controlled and the growth rate remains capped at 3.2 percent in fiscal year 2018. In a bit of good news, total state funded Medicaid disbursements are projected to be down $341 million in fiscal year 2017 and $80 million in fiscal year 2018 compared to the first quarter update. State funded Medicaid expenses are now estimated to decrease 1.3 percent in fiscal year 2017.
- Do minimum wage increases related to State contracts cost more than expected?
Yes – the Mid-Year report increases these costs by $31 million in fiscal year 2017; $167 million in fiscal year 2018; $326 million in fiscal year 2019; and $427 million in fiscal year 2020 above the first quarter update. The cost of the minimum wage increase is now approximately double what it was in the initially adopted budget.
- Are future budget gaps continuing to grow?
Oh yeah! – Out-year budget gaps continue to increase. Since the first quarter update, the fiscal year 2018 gap grew by $295 million to $3.5 billion; fiscal year 2019 grew by almost $1 billion to $7.1 billion; and fiscal year 2020 grew by almost $1.4 billion to $8.9 billion. If the economy enters a recession during the financial plan period, the four-year deficit could grow.
The Legislative houses were supposed to release their projections of revenues and expenditures by November 5 – we await their reports.