Last month, the New York State Division of the Budget released an updated economic forecast (First Quarterly Update to the FY 2023 Enacted Budget Financial Plan), which revises the State’s financial outlook over the next several years. This reflects a shift from expectations following enactment of the current State budget in April 2022, when it was projected the State would have a fiscally balanced financial plan over the next five years. However, even then, the State recognized that a number of variables could impact the State’s favorable fiscal situation:
“While the State’s financial position currently appears strong, sustaining new recurring commitments over a longer time period may be difficult, as new economic risks emerge, federal funds are spent down, and temporary tax revenues sunset. Bolstering reserve funds is essential for ensuring services New Yorkers rely on can be preserved through economic challenges and fiscal uncertainties, and every opportunity should be taken to maximize deposits to the State’s statutory rainy day reserve funds.”1
Consistent with that admonition, New York State had dedicated and planned record funding for its reserves:
“[T]he [2022-23] Budget brings the State’s reserves to 15 percent of State Operating Funds spending by 2025 – a level never seen before. Planned deposits are: $5 billion in FY 2022, $5.1 billion in FY 2023, $2.5 billion in FY 2024 and $2.9 billion in FY 2025.”2
Yet, the “new economic risks” cautioned by the State Comptroller have come into play since April in the form of increased inflation and significantly reduced bonuses for New York’s financial industry—a chief source of personal income tax revenue for the State. This has prompted the State to conclude that State tax revenue estimates for 2024 and beyond will be “reduced substantially from the FY 2023 Enacted Budget in recognition of a weaker economic outlook for both the US and State.”
In turn, the State now projects that, while the current fiscal year (FY 2023) will enjoy a surplus, FY 2024 will experience a “modest budget gap” of $310 million, followed by more significant budget gaps of $3.6 billion in FY 2025, $3.5 billion in FY 2026 and $6.2 billion in 2027.3 It is notable that the State’s projected fiscal challenges are not as dire as those facing New York City, which is anticipating budget gaps of $869 million in FY 2023, $6.43 billion in FY 2024, $7.07 billion in FY 2025 and $9.55 billion in FY 2026.4
The Quarterly Update also stated that if the Governor were to approve several bills passed by the Legislature, including a $500 million annual Excelsior green chip tax credit, such additional costs would be factored into future fiscal updates.
The immediate and long-term impacts of this revised, negative financial outlook by the State will presumably result in the Governor being more cautious with State spending beginning with next year’s budget. Of course, many variables could affect final State spending decisions in the enacted budget, including whether there are increased revenues available from new funding sources (e.g., taxes and fees) and whether the financial markets stabilize and improve. We will not know for certain how the State’s fiscal situation will develop until future quarterly reports are released, but the current forecasts are strongly signaling caution, which the State will likely heed as the national and state economies continue to face increasing uncertainty.
1 New York State Comptroller, State Fiscal Year 2022–23 Enacted Budget Analysis (May 2022). See https://www.osc.state.ny.us/reports/state-fiscal-year-2022-23-enacted-budget-analysis.
2 New York State Division of the Budget, Governor Hochul Announces Highlights of Historic FY 2023 Budget (April 9, 2022). See https://www.budget.ny.gov/pubs/press/2022/fy23-enacted-budget-highlights.html.
3 New York State Division of the Budget, First Quarterly Update to the FY 2023 Enacted Budget Financial Plan (August 2022), at 8. See https://www.budget.ny.gov/pubs/archive/fy23/en/fy23en-fp-q1.pdf.
4 New York City Comptroller, Comments on New York City’s Fiscal Year 2023 Adopted Budget (August 24, 2022). See https://comptroller.nyc.gov/reports/comments-on-new-york-citys-fiscal-year-2023-adopted-budget/.