New York State's Surging Income Tax Receipts
New York State's Surging Income Tax Receipts
New York City may have trouble facing its “new economic reality,” but New York state’s budget shows an entirely different picture.
New York City may have trouble facing its “new economic reality,” but New York state’s budget shows an entirely different picture: no deficits projected over the next five fiscal years.
The state is not alone with improving finances. After a period of unprecedented fiscal support and rebounding revenues, the National Association of State Budget Officers (NASBO) reported in its recent fiscal survey:
Rainy day fund balances reached a new record level of nearly $113 billion in fiscal 2021 due mainly to stronger than anticipated revenue growth, with 35 states reporting increases. The median balance as a share of general fund spending is 9.4 percent.
Neighboring Connecticut released a revised revenue forecast last week showing collections exceeding budget and will likely be able to put surplus toward paying down pension liabilities.
This week's digest looks at what people are saying about the recently proposed New York State budget, forecasting personal income tax (PIT) receipts, and an interesting read on revenue diversification.
IN FOCUS
What a Difference a Year Makes
A State Budget With an Unexpected Twist: No Red Ink NY Times
Gov. Kathy Hochul proposes $216.3 billion state budget City & State New York
NY budget highlights: Hochul's pledges record spending, cautious savings Politico Pro New York
A First for New York: Balanced Budgets for the Next Five Years Bloomberg
Items of Interest
Hochul Balanced Budget Proposal Banks on Wealthy Staying Put The City
As Broadway Struggles, Governor Proposes Expanded Tax Credit NY Times
Budget plan includes $35M for native schools 7 News (WWNY)
New York Will Generate More Than $1.25 Billion In Marijuana Revenue Over Next Six Years, Governor’s Budget Estimates Marijuana Movement
Projects $56M in cannabis revenue next fiscal year
What Does the Budget Mean for New York City?
What does Hochul’s budget do for New York City? City & State New York
Hochul proposes $2.1 billion increase for NY schools, extension of NYC mayoral control Chalkbeat New York
Hochul’s Budget Would Allow NYC Casinos, Give Health Workers A Bonus Gothamist
Fare Hikes May Be Off the Table in 2022 on NYC Subways, Buses Thanks to State Funding Bloomberg
CHART OF THE WEEK
For the state of New York, personal income tax (PIT) receipts are an important barometer of its fiscal health. Absent federal aid, PIT revenues make-up an average 45% of all fund receipts from fiscal 2021 to 2025 — its largest non-federal revenue source.
New York is the only state with a fiscal year starting April 1st.
When the state was finalizing its fiscal 2021 budget in March 2020, it was extremely difficult to predict how revenues would perform during the pandemic. As a result, the budget was adopted with the Governor’s original proposal and revenues were revised in the Enacted Budget Financial Plan.
Comparing the FY 2021 Executive Financial Plan to the Enacted Budget, the state forecasted a 14% decline in PIT revenues in FY 2021 with steeper declines the following two years. Forecasting revenues isn’t an exact science, add in a once in a century pandemic and it becomes near impossible.
The graph depicts the state’s PIT revenue projections over the past few years, showing actual receipts in 2019, 2020, and 2021 compared to forecasts. It shows what the state was expecting pre-pandemic, at its onset, and now.
Based on the Governor’s FY 2023 proposal, PIT revenues are performing far better than expected. The improved outlook has allowed the Governor to deposit more funds into the state’s “Principal Reserves” and bring them to 15% of operating expenditures by fiscal 2025.
According to the State Budget Director:
… as the federal funds fall off, we [New York State] still have no out year gaps even without the federal funds. We spread out the federal funds over multiple years to avoid a fiscal cliff.
Since the time of the mid-year, we've had more forecast revisions, and again, revenues have climbed even further. Tax receipts are expected to close in the current year about close to $4.9 billion above even the mid-year forecast.
Based on the Financial Plan, the state is in a strong position.
There are a number of risks to any forecast, but better for the state to be starting from a position of strength — and no where near what it had projected in mid-2020.
INTERESTING READS
Revisiting the theory of revenue diversification: Insights from an empirical analysis of municipal budgetary solvency Budgeting and Financial Management
The Issue: How does revenue diversification shape the budgetary solvency of city governments?
Key Finding:
Greater reliance on fees and charges improves budgetary solvency by limiting city officials’ ability to increase spending on services that residents are not willing to pay for.
The critical point highlighted by our findings and the causal mechanisms that we propose is that diversification is neither irredeemably bad nor unquestionably good for fiscal health, as extant theories suggest.
Any opinions expressed herein are those of the author and the author alone.