ALBANY – The stock markets have been slammed. The Federal Reserve cut its benchmark interest rate. Some schools are temporarily closing and some businesses are telling employees to work from home.
Airlines are reducing routes. Public and private universities are bringing home some overseas study students.The tourism industry is jittery.
One thing not affected, so far, by the novel coronavirus spread? Albany’s penchant for spending.
Gov. Andrew M. Cuomo and legislative leaders recently agreed that a new higher amount of tax revenues – $700 million – will be coming Albany’s way over the next two years than had been projected by the governor in January.
There will be two basic options: spend it or place the newfound money into the state’s rainy day funds to cover fiscal emergencies or sharp economic downspins. Or, officials can do a combination of those things.
The answer won’t be known until the new state budget is cobbled together sometime, if on time, by the end of the month.
Some lawmakers and many groups across the state are already eyeing that money to spend on social, educational and health programs that, they say, are facing cuts or flatline expenditure plans by Cuomo.
Fiscal watchdogs, though, are urging caution, especially given what’s going on in and around New York State with eroding economic confidence and corporate profit problems.
“The state’s financial plan is built on continued economic expansion. If anything were to undermine that expansion or even yield lower growth than forecast the state would come up short," said David Friedfel, director of state studies at the Citizens Budget Commission, a nonpartisan group that for decades has been a watchdog of state budgets.
“The state is currently not equipped to deal with an economic recession in terms of its rainy day reserves," he added.
Wall Street reliance
State officials are more than aware that New York is especially vulnerable during economic downturns.
That’s because New York, more than any other state, relies heavily on taxes flowing from Wall Street corporate and investors’ profits and the income to Albany driven by big annual bonuses paid to finance sector executives. State Comptroller Thomas DiNapoli last spring said the $14 billion in state tax collections from the securities industry in New York accounted for 18% of all state tax revenues. He has been among the loudest raising concerns about what he believes are woefully inadequate rainy day funds by Albany to have on hand when fiscal troubles arise.
For New Yorkers, the problem – as seen before – is that a big hit on tax receipts that might not appear until late spring or summer or even the fall could force big spending cuts or tax hikes, or both, sometime after the budget is adopted.
The impact? That could force Albany, as seen before, to reduce the flow of money promised to schools, local governments and health care entities that provide services on the state’s behalf and others who get state funds. That then, in turn, could force tax hikes or cuts to programs on the local level.
A state budget is a planning document lasting for 365 days. Estimates can be right or wrong. Governors, who can control things like the timing of payments to hospitals, can do all sorts of maneuvers to try to keep a budget in balance that, on paper, might be in the red.
But the economic uncertainty comes as the state is already facing a multibillion operating budget shortfall – driven largely by a $4 billion deficit in the Medicaid health insurance program that still needs to be addressed.
Could the coronavirus situation affect the state budget? “If you have a national or global recession, yeah," Cuomo said on Thursday at the Capitol.
It might not, however, even take that much to cause fiscal troubles for the budget that Cuomo, lawmakers and their staffs weeks away from finalizing.
Officials say the new economic worries were factored into the forecast for $700 million in additional revenues, and that the number is spread across not just the coming fiscal year – starting April 1 – but also 2021.
“The uncertainty surrounding the spread and impact of the coronavirus is an exceedingly significant downside risk to the economic and revenue forecasts as it directly impacts the financial markets, global supply chains and trade and could severely restrain global and domestic growth," said the revenue forecast agreement agreed to by Cuomo and legislative leaders. The same document also said that quick resolution of the virus outbreak could boost employment and corporate profits resulting in even more revenues beyond the $700 million.
The Cuomo budget office said a large part of the $700 million is based on higher-than-anticipated Wall Street bonuses paid out after Cuomo released his budget plan in January. The higher tax revenues are being factored into budget talks in Albany “as we take a prudent approach amid coronavirus uncertainty and market turmoil," the agency said.
A year ago, Cuomo and legislative leaders could not agree on a revenue number in the month before a budget was due. Cuomo raised concerns about the economy and drove money into reserves.
“This year, the economic outlook is far worse than it was at this time last year," said E.J. McMahon, research director at the Empire Center for Public Policy, a fiscal watchdog group that warns of state overspending.
McMahon believes the $700 million revenue forecasting document “duly paid lip service” to the potential impact the coronavirus spread on markets and the economy – and therefore state tax receipts. “This is a governor known for inflating problems into a crisis, financially, when it suits his purpose. Here, you’ve got something that could be a financial crisis that they are downplaying," he said.
That has people like McMahon and others thinking lawmakers will make a grab to use the higher revenues to boost spending even more than they’d like beyond the Cuomo budget.
Lawmakers: spending cuts too deep
Lawmakers say they are already concerned that Cuomo’s budget plan shortchanges school districts around the state and will force cutbacks in some form or another to low-income, seniors and disabled people who rely on Medicaid.
“Do I believe that having a well-funded reserve fund is good public policy? Yes, I do. Do I also see there is a desperate need not to cut critical funding that the governor is currently proposing to cut? Yes, I also think that," said State Sen. Liz Krueger, a Manhattan Democrat who chairs the influential Senate Finance Committee.
Krueger said some of the fiscal needs in communities are stark, and will be compounded by the actions being contemplated to find $2.5 billion in savings this year from the Medicaid program. One-third of the state’s population is on Medicaid – and that has come when the nation’s economy and Wall Street had been rolling along for years.
“The emergency is already here," Krueger said. She is worried about the annual lament by lawmakers: the governor controls nearly all the budget cards and lawmakers cannot, on their own, simply add spending beyond what he wants.
A spokesman for Assembly Speaker Carl Heastie, a Bronx Democrat, declined to comment.
Mike Murphy, a spokesman for Senate Majority Leader Andrea Stewart-Cousins, a Westchester County Democrat, said the $700 million additional revenue deal was agreed to by all Democratic and Republican legislative conference leaders and reflects recent trends that point to already increasing tax revenues for 2020.
“As with all budget decisions, we will discuss as a (Senate Democratic) conference and work with our partners in government to identify the best and most responsible path forward," Murphy said.
Forecasts 'extremely difficult'
Lawmakers are besieged by groups – from housing advocates for homeless people to school districts and hospitals and nursing homes to social service agencies – looking for more money.
One such advocate is Ron Deutsch, executive director of the Fiscal Policy Institute, a group financed by unions and others who advocate for a retooling of the state’s financial priorities in such ways as reducing economic development dollars flowing to corporations and raising taxes on wealthy residents.
“Some say New York has a spending problem. I would suggest we do have a spending problem. We’re not spending enough. We need to spend more on our schools, addressing the health care shortfall and poverty alleviation," Deutsch said. He noted, for instance, Buffalo’s high child poverty rates are not adequately addressed in Cuomo’s budget plan.
The newly identified extra $700 million, he said, “should absolutely be used to restore any cuts in the budget and address the deficit."
Economic experts were called last month to Albany, as they are every February, to provide their take on state, national and global trends that might affect the state budget. Each of the sides in the budget talks hired those experts to prepare reports and then testify before top fiscal staffers and lawmakers at the Capitol.
With the coronavirus’ impact on the markets and economy already, Hugh Johnson, a longtime influential investment advisor based in Albany, raised alarms. “I wouldn’t want to be in your shoes at all," Johnson, brought in by Assembly Democrats, told the state fiscal leaders in a first floor room at the Capitol. “I think it’s an extremely, extremely difficult period to try to forecast what goes ahead."
A couple days later, Cuomo and legislative leaders agreed on the new, higher revenue estimate of $700 million. That was $400 million below what Senate Democrats were projecting and $1 billion below Assembly Democratic estimates.
Story topics: Covid-19