NYS Budget

Moody’s Finds County Governments Prepared For Economic Trouble

From the Morning Memo:

A report released Tuesday by the investor service Moody’s found many New York counties are better prepared to weather a potential recession than they were a decade ago.

The report pointed to stronger reserves, liquidity and growing sales tax revenue as well as the management of expenses.

Still, some counties that rely heavily on sales tax revenue would nevertheless put “significant financial stress” on the local governments, including large ones like Suffolk County.

“Improved reserves and liquidity bolster most counties against a potential recession,” the report found. “Growth in sales tax revenues, though slower than in previous recoveries, and active expense management over the past six years drive improved financial flexibility. Expense growth will likely remain muted because of counties’ limited revenue-raising flexibility given New York’s property tax cap, which came into effect in 2012 and has led local governments across the state to rein in spending.”

At the same time, given the current economic expansion, the report was also bullish on tax bases being able to withstand a downtown in property values.

“Adjusted net pension liabilities will likely increase slightly in 2019 based on flat to minimally negative plan performance, but given the relatively strong funding level of New York’s pension programs, pensions are not likely to adversely affect county credits over the next several years,” the report found.

Revenue Forecast Bullish For State’s Economic Growth

The consensus revenue forecast released Friday by the Division of Budget found reasons to be bullish for the state’s labor outlook in 2018, pointing to global growth, federal tax changes and higher federal spending.

Nevertheless, the forecast — a product of Gov. Andrew Cuomo, the Republican-led Senate and Democratic-controlled Assembly — found “some disagreement” over the impact of the tax changes signed into law by President Donald Trump in December.

Cuomo has railed against the tax law and its capping of state and local tax deductions at $10,000 and has pledged to push for a repeal of the measure. The tax law and its impacts are still considered a potential risk factor for the state, but the forecast presents a more sober look at the impact of the tax law, which includes cuts to income taxes as well as the corporate rate.

“The potential impact of federal tax law changes represents a source of both upside and downside risk to the household spending and business investment forecasts,” the report found. “Additional sources of risk to the household sector include slower housing market growth than expected, brought about in part by strong home price growth, as well as a steeper slowdown in auto sales than anticipated.”

The report found all agree household spending, employment and net worth are due to increase in 2018.

When it comes to the state’s labor market, the consensus for growth points to a 1.1 percent increase for the 2018-19 fiscal year, with wages increases by 4.4 percent.

Overall, two-year revenue is expected to be within a $675 million to $750 million range above what Cuomo’s $168 billion spending plan initially estimated.

The forecast is a key step in reaching an agreement on the budget, which lawmakers plan to pass by March 29, several days before the start of the state’s fiscal year.

DiNapoli: Revenue Boosted By Business Tax Collections

Tax collections from businesses helped buoy the state’s overall tax collections last month, according to a report released Friday by Comptroller Tom DiNapoli’s office.

The August tax collections report found state revenue from taxes totaled $28.2 billion for the five months of the current fiscal year — $133 million higher than the updated projections.

This has come from a double digit increase in business tax collections.

“Business tax receipts have jumped and are up more than 30 percent from last year,” DiNapoli said. “However, that strong growth largely reflects increased collections from tax audits. Quarterly payments from both business and personal income taxes are due in September, which will provide a better indication of how current economic conditions are influencing tax collections this year.”

All-funds spending reached $62.4 billion through Aug. 31, or $4 billion higher than the same period last year.

Moody’s: Enrollment Spike At SUNY Could Hurt System

The credit rating agency Moody’s in a report released Wednesday found the free tuition program as approved in the 2017-18 state budget is unlikely to have a negative impact on the credit of the state’s public universities.

For the most part, any bump in enrollment will be offset by tuition dollars already being paid.

The program once fully phased in would provide free tuition to students whose families earn less than $125,000 a year and will cost $160 million. The state budget agreement also included a $200 tuition increase.

“The new scholarship may contribute to a modest increase in overall enrollment, but we believe it is more likely these funds will supplant tuition dollars already paid by students from middle-income families,” said Moody’s Associate Managing Director Susan Fitzgerald. “Therefore it is unlikely to result in substantial new enrollment or funding for New York’s public universities.”

However, a spike in enrollment because of the scholarship program could lead to negative side effects for both the state and city public college systems, the report found.

As a result, SUNY and CUNY schools would need to find additional ways of covering new costs or finding new ways of raising revenue.

At the same time, an enrollment increase could move some students away from private colleges in the state, negatively impacting institutions that have less money and are more regionally known.

“Many of these schools already confront a highly competitive environment and even small shifts of enrollment to the public sector could have a negative effect on their already tight financial situations,” Fitzgerald said.

NYSAC: $155M In New Costs For Counties

The New York State Association of Counties is raising an end-of-budget season alarm over mandated costs that could be part of the final state budget agreement.

In particular, NYSAC is focusing on three areas that, when fully phased in, would cost a combined $155 million for local governments.

They are concerned about funding cuts for foster care programs, public health and federal social service funds being reprogrammed.

“With the recent talk of cost shifts from Washington to New York State, you would think State Lawmakers and the Governor would be more sensitive to passing the buck to county property taxpayers. Unfortunately, they don’t seem to care as much when they are the ones doing the shifting,” said NYSAC President William E. Cherry, the Schoharie County Treasurer. “Who is going to defend property taxpayers from these new costs coming down from Albany?”

One proposal would shift costs to counties through consolidating 39 public health appropriations into four areas and then reduced by 20 percent.

Another newly found state mandate would expand the terms of expanding indigent legal services. At the same time, NYSAC is worried raising the age of criminal responsibility, will also require county governments to fund or expand programs and services for the new legal change.

“They keep passing the buck, but they aren’t passing the bucks. If these funding cuts stay in the budget, they have nobody to blame for high property taxes but themselves. The very programs that are targeted for cuts, are in fact ones that are necessary if the state raises the age of criminal responsiblity,” said Stephen J. Acquario, executive director of NYSAC.

Report Reviews Impact Of Federal Funding

As Gov. Andrew Cuomo raises the possibility of an “extender” budget blamed on federal government-level uncertainty over potential cuts in spending to the state, the Fiscal Policy Institute has released a report examining the impact of D.C. aid to New York state and local governments.

The report, released Wednesday by the left-leaning Fiscal Policy Institute, examined the $70 billion in funding that is sent from the federal government to state and local municipalities.

Overall, the report points to the third of New York’s all-funds budgeting coming from the federal government as well as the billions sent to local governments, schools and for transportation spending.

“This year’s New York State budget negotiations take shape against a worrisome backdrop. The president and congress seem poised to make drastic cuts to programs that help millions of New Yorkers, and create a hostile environment for the state’s four million immigrants,” said Ron Deutsch, executive director of the Fiscal Policy Institute. “This should be New York State’s cue card to step up and prepare for significant budget shortfalls.”

Federal Funding Brief by Nick Reisman on Scribd

NYSAC: Don’t Forget Indigent Relief

The state Association of Counties is urging state lawmakers and Gov. Andrew Cuomo to agree to a budget that includes the state assuming partial cost of indigent legal defense services.

The measure has long-stalled in Albany following multiple gubernatorial vetoes: Cuomo has cited the cost as well as the need to include the funding in the “context” of the budget.

NYSAC believes $370 million in relief is needed for the legal services for the poor, which would satisfy a 1963 Supreme Court ruling.

“The real cost shift took place 50 years ago, and property taxpayers have been paying for this state program ever since,” said NYSAC President William Cherry. “Our county leaders and State Lawmakers have been working for years on a sensible legislation that would relieve property taxpayers from this state burden. Now is the time to enact that language in the State’s spending plan.”

Cuomo’s $152 billion budget proposal does include a plan that would expand a recent state settlement that includes public defender case cap loads. But NYSAC finds fault with this, since it would require the counties to put up the expnaded indigent defense services cost.

“I believe we have made the case. That our public system of defense in New York can be vastly improved,” said Albany County Executive Dan McCoy. “We have bi-partisan and strong support within the Legislature to implement the necessary reform, and I encourage our Senators and Assembly Members to support these reforms. These costs have always been the state’s responsibility, but they shifted those to property taxpayers. Now we have an opportunity to both strengthen public defense and lower the property taxes allocated to these services.”

A New Middle Class Tax Cut? Not Quite

To hear Gov. Andrew Cuomo tell it this week, the proposed $152 billion budget includes a tax rate reduction for those who earn $40,000 and above.

“At the same time, we do a Middle Class Tax Cut for 6 million New Yorkers. From $40,000 to $150,000, the rate would go from 6.85 to 6.45 and $150-300,000, 6.85 to 6.65,” Cuomo said according to his office’s transcript of the budget presentation. “And these would be phased in and they would continue to drop as the years go on.”

He added later: “On the legislative agenda side, we’ll reduce middle class taxes, we’ll have a historic high in education aid.”

This is all true in an academic sense, but also true in the same way the minimum wage is increasing this year.

In other words, as EJ McMahon at The Empire Center pointed out this morning, these tax cuts for middle earners were already approved in last year’s budget plan.

Indeed, the very rates that Cuomo talked about on Wednesday night, phased in through 2025, will begin in the 2018 tax year.

The tax cut talk came as Cuomo was also pushing for the extension of a surcharge on those who earn more than $1 million a year, due to expire at the end of the year.

Budget Division: PIT Collections ‘Disappointing’

Revenue from the state’s personal income tax “continued to be disappointing” in the first half of the state’s fiscal year, the Division of Budget reported in its mid-year budget analysis.

The report, released Monday, found PIT collections through September decreasing by $404 million over the estimate in its first quarter update and more than $1.2 million below the estimate in the initial budget plan.

As a result, the Division of Budget is lowering its projections for revenue from the personal income tax to $775 million.

“The expected loss of tax receipts is offset by substantial downward revisions to General Fund disbursements, including General Fund transfers to Other Funds,” the DOB wrote in its report. “Based on a review of operating results through the first half of FY 2017 and updated data on State programs and activities, DOB has lowered its spending estimates in several areas, including mental hygiene, preschool special education, and higher education.”

Current estimates “show a potential” for a budget gap $689 million in the coming fiscal year, which begins April 1. Following that, a $2.1 billion deficit is projected for 2018-19 fiscal year, and a $1.7 billion deficit in 2019-2020 if spending growth continues to be limited to 2 percent increases in the coming years.

“The projected budget gaps in FY 2019 and FY 2020 are due to several factors, including the planned reversion of the top PIT rate to 6.85 percent from the current rate of 8.82 percent at the end of calendar year 2017, and the multi-year income tax reductions for middle-class taxpayers enacted in FY 2017,” the report found.

Fy 2017 Midyear Update by Nick Reisman on Scribd

DiNapoli Report Finds Future Budget Gaps

A report released by Comptroller Tom DiNapoli’s office on Friday raised the possibility of potential budget gaps in coming years as a result of increases in spending, tax cuts and one-shot revenue sources in the current-year spending plan.

Gov. Andrew Cuomo’s Division of Budget rebuked the report, knocking the report as having ignored “key details.”

The report calls in to question the fiscal soundness of the enacted 2016-17 state budget. And even with capping spending increases at a 2 percent hike — as Cuomo has sought and successfully gained since 2011 — the deficits are still likely.

Current projections show the state on average faces potential budget deficits of less than $5 billion annually over the next three fiscal years starting in 2017-18, which begins April 1.

“New York is facing the prospect of outyear budget gaps,” DiNapoli said. “New York’s rainy day reserves are at low levels compared to many states and the use of temporary resources to meet recurring expenses contributes to the state’s potential outyear budget shortfalls. More must be done to promote long-term structural balance and ensure that taxpayers’ dollars are used cost-effectively.”

Education aid, one of the costliest items in the budget aside from health care, is expected to increase by 4.8 percent in the current fiscal year and grow by 5.3 percent on average over the next three fical years.

The current budget also relies on $5.9 billion in “temporary or non-recurring resources” otherwise known as “one-shot” revenue that can’t be relied upon year after year.

The Division of Budget, an arm of the Cuomo administration, contested DiNapoli’s findings.

“Once again the Comptroller is cherry picking data and ignoring key details in its reporting,” said DOB spokesman Morris Peters. “The truth is the State’s fiscal position is sound and it enjoys its highest credit rating in decades. The enacted budget held spending growth to 2% for the sixth consecutive year and the Governor’s commitment to spending restraint has led to higher reserves and reliable funding for key State programs, including education and health care.”

2016_17_enacted_budget_finplan.pdf by Nick Reisman on Scribd