After two years of extraordinary volatility in state finances, the State Budget Division’s 2022-23 state budget fiscal plan forecasts fiscal stability for the next five years and includes plans to significantly strengthen reserves for rainy days, according to a report from the 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,” said DiNapoli. “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. »
The fiscal plan calls for disbursements in 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 2022-23, and to reach $113.2 billion by 2026-27, reflecting average annual growth of 6.4%. Although planned disbursements exceed revenues in some years, the financial plan indicates that excess General Fund resources, primarily accumulated in 2021-22, will be used to balance the budget in 2022-23 and beyond.
Projected DOB growth in General Fund expenditure reflects continued temporary funding for pandemic recovery and health and direct care personnel in 2022-23, as well as significant expenditure growth over the period of the financial plan in school aid and Medicaid.
Expenditures may increase beyond the projections of the current financial plan. For example, the fiscal plan assumes Medicaid enrollment will peak at nearly 7.7 million in 2022-23 and return to near pre-pandemic levels of 6.1 million in 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. The State Budget Division intends to transfer this funding to the General Fund over four fiscal years. While it is prudent to spread the use of these funds over several years, the Budget Division reports that the majority of 2021-22 funding went to “government services.” Without further details, it is difficult to assess the extent to which temporary funds support recurrent expenditures. However, 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 adopted budget 2021-2022, including temporary personal income tax increases for high earners, creates an additional risk. In 2019, taxpayers with income of at least $1 million accounted for 1.2% of total taxpayers and held 38.2% of liability. The temporary increase in the personal income tax rate makes the state more dependent on high-income taxpayers; these taxpayers generally have income from more volatile sources, such as capital gains.
Personal income tax revenues also depend 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 tax rate increases to personal income taxes and business franchise fees and largely unlimited federal assistance are expected to total $27.6 billion, or more than 5% of General Fund expenditures during the financial plan period. At the end of the plan period, when the increase in the personal income tax rate expires, nearly $4 billion in annual resources will become unavailable.