Amid soaring inflation, a market slowdown and fears of recession, government spending will hit new highs under the April budget deal, in line with the financial plan of the adopted budget (Plan) that the Governor’s Budget Office quietly released late last Friday afternoon.
State operating fund spending is projected to increase this year by $14 billion or 12%, after adjusting for accounting maneuvers. * This is near-record increase in government spending, even taking inflation into account.
More broadly, total spending (all funds) flowing through Albany’s budget is expected to reach $222.2 billion this year, an increase of $49.2 billion or 28% in the three years since the pre-pandemic budget cycle 2019-2020.
And yet the plan optimistically predicts that the increased tax levies fueling most new spending – largely resulting from rate hikes on high earners enacted in April 2021 and set to expire in 2027 – will keep the budget balanced while allowing annual expenditures of several billion dollars. dollar reserve deposits that create a cushion of 15% of state operating funds ($19.4 billion) by 2025 to protect against a revenue shock.
And it’s commendable that two-thirds of these notional reserve deposits go into Rainy-Day Statutory Reserves – accounts partially protected against unnecessary withdrawals. It’s a 180-degree reversal from the January executive budget, which earmarked two-thirds of those deposits for pseudo-reserve accounts that politicians could invade at will.
But all of the above is academic unless surpluses materialize. And it is highly unlikely that they will, for at least three reasons.
First, the optimistic scenario is critically dependent on optimistic economic and revenue forecasts, including stable market conditions; state revenues increasingly depend on capital gains and bonus income generated by Wall Street. My colleague, EJ McMahon, recently estimated in this space that, if not reversed, the decline in the stock market since January could reduce expected tax revenue this year alone by at least $2 billion. Surplus projections also hinge on the broader economic health of the nation, state and New York City, whose fragile recovery is marked by tepid job growth lagging the rest of the world. nation.
Second, the plan assumes that the billions in “one-time” spending added to the budget will not be increased. In her January budget proposal, the Governor set to work to dissipate the historic surpluses she had inherited, proposing significant spending increases – although most are characterized as one-time, non-recurring items (for example, health worker bonuses). In April, it accessed an additional $2.2 billion in supposedly one-time spending that the budget optimistically assumes will be stopped in less than a year.
Finally, the baseline budget provides that no new spending will be added in future budget cycles, either by the Governor or the Legislature.
This assumption lacks historical foundation.
All of this makes it highly unlikely that reserves will be replenished as expected. And the balanced budget law will only become more difficult. The $12.7 billion in US federal bailout funds the state has received will be spent by the end of 2025. And the state’s “temporary” tax hikes on high earners enacted in April 2021 should expire in 2027.
It’s important to the state’s economic future that those rates return — and preferably before 2027 — so it can hope to retain an increasingly mobile workforce. New Yorkers are already among the most taxed of all Americans. But even allowing temporary and unnecessary tax hikes to expire as scheduled will require more spending discipline from the governor than this administration has shown it can muster.
* The budget office’s main accounting ploy, as revealed by the plan, was to advance the $7.5 billion in spending (including early debt repayment) that is expected to take place this year through the end of the year. fiscal year that ended March 30.and – technically reducing the spending hike of the recent year-on-year budget deal.