After two years of extraordinary volatility in state finances, the budget fiscal plan adopted for the state fiscal year (SFY) 2022-2023 from the Division of the Budget (DOB) forecasts fiscal stability for the next five years. and includes plans to significantly bolster reserves for rainy days. , according to a report by State Comptroller Thomas P. DiNapoli. However, DiNapoli’s analysis identifies several revenue, expense and sustainability risks that could disrupt the financial plan and need to be watched closely.
“Amid enormous uncertainty, the state fiscal position is currently stable, providing an opportunity to build reserves that should not be lost,” DiNapoli said. “While the state’s fiscal plan expects revenue growth to continue, economic risks are mounting and may jeopardize the state’s fiscal base. Making rainy day storage deposits on time or ahead of schedule can help prevent disruptions to essential programs and services. »
Overview of the financial plan
The DOB financial plan projects disbursements in fiscal year 2022-23 of $222.2 billion from all funds, including $122.7 billion from state operating funds. General Fund disbursements (including transfers to other funds) are projected by the DOB to total $96.1 billion in fiscal year 2022-23, rising to $115.8 billion in by fiscal year 2026-27, for an average annual growth of 4.8%. General Fund revenue is projected to total $88.3 billion in FY 2022-23, increasing to $113.2 billion by FY 2026-27, reflecting average annual growth of 6.4 %. Although planned disbursements exceed income in some years, the financial plan indicates that surplus General Fund resources, mainly accumulated in the 2021-22 financial year, will be used to balance the budget for the 2022-23 financial year and later years.
The expected growth in General Fund spending DOB reflects continued temporary funding for pandemic recovery and the health care and direct care workforce in fiscal year 2022-23, as well as ‘significant growth in spending over the period of the financial plan in school aid and Medicaid.
Risks and Reasons for Concern
Expenditures may increase beyond the projections of the current fiscal plan. For example, the fiscal plan assumes Medicaid enrollment will peak at nearly 7.7 million in fiscal year 2022-23 and return to near pre-pandemic levels of 6.1 million in the next. financial year 2023-24. If Medicaid enrollment declines at a slower rate than expected or does not decline as much as expected, the state will incur significant additional costs.
In the longer term, the high level of General Fund expenditure may be difficult to sustain as temporary resources run out or expire. Notably, the U.S. bailout included $12.7 billion for New York State that can be used for a variety of purposes, including covering lost revenue from the economic impacts of COVID-19. DOB intends to transfer this funding to the General Fund over four fiscal years. While it’s prudent to spread the use of these funds over several years, DOB says the majority of the funding for the 2021-22 fiscal year went to “government services.” Without further details, it is difficult to assess the extent to which temporary funds support recurrent expenditures. However, this temporary funding is an important factor in the projected General Fund balance throughout the financial plan period.
The reliance of the financial plan on certain measures of the budget adopted for the 2021-22 fiscal year, including temporary personal income tax (PIT) increases for high earners, creates an additional risk. In 2019, taxpayers with income of at least $1 million accounted for 1.2% of total IRP taxpayers and held 38.2% of IRP liabilities. The temporary increase in the PIT rate makes the state more dependent on high-income taxpayers; these taxpayers generally have income from more volatile sources, such as capital gains.
IRP revenue also depends on taxpayers, especially high-income taxpayers, who continue to be residents of New York. According to an analysis by the Office of the State Comptroller, more taxpayers left New York than moved in each year from 2015 to 2019. Although this occurred at all income levels, the number of taxpayers with incomes over $1 million who left the state were nearly double those who moved in.
Over the life of the fiscal plan, temporary increases to corporate income tax and business franchise tax rates and largely unlimited federal assistance are expected to total $27.6 billion, more 5% of general fund expenditures over the fiscal plan period. At the end of the plan period, when the IRP rate increase expires, nearly $4 billion in annual resources will become unavailable.
Given the context of uncertainty facing the state, DiNapoli’s report notes that this financial plan will be difficult to execute, requiring close and continuous attention. To maximize the chances of success, the report recommends:
- Implementation of the reserve fund plan on time or before the planned date. The financial plan proposes to increase “core reserves” from $9 billion at the end of fiscal year 2021-22 to $19.4 billion in fiscal year 2024-25, which would result in reserve funds equal to 15% of the expenses of the state operating funds. Reaching this level of reserves would have a significant stabilizing effect on the government’s long-term finances and reduce the likelihood that the government would have to take destabilizing measures to manage unexpected budget deficits.
- Effective implementation of recovery programs. The DOB estimates that $40.1 billion in federal funding will be disbursed between SFY 2021-22 and SFY 2026-27 for pandemic-related relief programs, including $15.1 billion in the fiscal year. Classes. Given the importance of these funds to the economic and fiscal recovery of the state, a greater level of public disclosure regarding the actual and planned uses of the funds is necessary to allow policymakers and the public to monitor the allocation of these resources. In particular, it is essential to ensure that funds are provided equitably to the communities most affected and that they are deployed as quickly as possible. The Office of the State Comptroller will continue to update and expand the tracking of the COVID-19 relief program to support this effort.
- Monitoring risks to economic growth. The current environment includes several risks that need to be carefully monitored, including continued supply chain disruptions, high levels of inflation and uncertainty due to the conflict in Ukraine. These factors have further complicated the economic recovery in the state, which has lagged the country in job recovery – only 79% of jobs lost during the pandemic have been recovered, compared to 96% nationally. .
- Reform capital and debt practices. With the government’s financial situation stabilized, policymakers should seek to reinstate prudent debt policies. The state should use more pay-as-you-go financing to reduce future debt issuance and long-term debt service costs, as well as seek to limit uses of debt to capital projects related to government assets. State.
State’s Fiscal Year 2022-23 Approved Budget Financial Plan
Additional Resources for Tracking Federal and State Relief Spending
COVID 19 Relief Program Tracking
Migration Patterns of Personal Income Taxpayers in New York State
Medicaid Enrollment Growth, COVID-19, and the Future
Track state and local government spending on Open Book New York. As part of State Comptroller DiNapoli’s open data initiative, search millions of state and local government financial records, track state contracts, and find frequently requested data.