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Comptroller: Federal bailout needed soon if New York is to stabilize finances

ALBANY – State Comptroller Thomas DiNapoli warned Wednesday the financial impact from the novel coronavirus pandemic is going to be felt by the state, schools and local governments across New York well into next year and possibly longer.

The state’s expanded reliance on borrowing to balance its books and looming cuts to 700 public school districts in New York are just some of the fiscal nightmares facing New York that raise alarms and underscore the need for a financial bailout by the federal government, the Democratic comptroller said Wednesday.

DiNapoli said the state also needs to be more aggressive than it has been in the past about using the fiscal crisis to “make a commitment to consistently build our rainy day reserves” in order to assure continued funding of essential services during future economic downturns.

Each year at about this time, the comptroller releases a review of the financial plan put together weeks earlier by the governor and lawmakers for the state's new fiscal year that begins each April 1. The report issued Wednesday, however, was dominated by one stark reminder after another about just how deeply the finances of the state government are – and will be well into the future – affected by the pandemic.

For instance, coming soon – in ways still not clear – will be cuts to schools, which just weeks ago when the state budget was adopted were looking at a year-to-year increase in aid from Albany. Schools outside New York City, the comptroller noted, rely on state aid for an average of nearly 40% of their total revenue, and in some districts – such as Buffalo – the figure is far higher. In this environment, cuts in state aid will not be able to be made up by, for instance, hikes in property or sales taxes that local officials couldn't get approved anyway with so many people out of work and many businesses shuttered.

The state is already reeling from an expected drop of at least $10 billion in revenue used to help finance everything from health care and higher education to environmental programs and law enforcement.

The new state budget authorizes up to $11 billion in borrowing – with some of the interests costs pushed well into the future – to help deal with cash flow and other fiscal problems.

DiNapoli said that the need for more financial help from Washington “is clear” if states like New York are to stabilize their budgets and avoid “drastic cuts that would hurt hospitals, schools and vital services."

On Wednesday, Gov. Andrew M. Cuomo said he and President Trump discussed state funding problems during their meeting at the White House the day before. “The President gets it," Cuomo said.

Cuomo said Democratic and Republican governors are united in pressing Washington for direct federal aid for the states to help with their budgetary problems. Federal bailout packages approved so far have helped states with health care costs and other functions, and Cuomo said that Trump agreed to waive a usual 25% requirement on New York to pay for expenses incurred by the Federal Emergency Management Agency for Covid-19 responses in the Empire State. That will save New York hundreds of millions of dollars, the governor said.

But the states want the next federal bailout bill to send money directly to states to help with their budget-balancing problems. “You can’t just ignore them," Cuomo said.

Some critics around the country, however, have wondered why Washington should bail out states that failed, for instance, to keep their reserve accounts in better shape over the years.

In his review of the new budget, DiNapoli said the current cash flow problems associated with a delay from April 15 to July 15 for taxpayers to file their federal and state tax returns will be felt in tax season 2021, as well. “This will result in depressed revenue at the start of the next fiscal year. The scope of such an impact is difficult to project, but will likely be significant," the DiNapoli report warned.

The comptroller noted that non-tax revenues will also be hit. He cited one: revenue the state receives from various gambling ventures. He noted racetrack-based casinos, closed since March 16, were projected to bring in $1.2 billion this year. Native American casinos are also closed, and they had been estimated to bring Albany $219 million in revenue-sharing this year. He noted that state lottery receipts are also heavily reliant on retail sales, through stores and bars and restaurants, some of which have been closed or open only for takeout and delivery.

The comptroller repeated a warning he has issued for years to the governor and lawmakers: build up reserves. “Ideally, the state will commit in coming years to a disciplined practice of building rainy day reserves that could be drawn upon the next time an economic downturn or catastrophic event depresses revenues or results in extraordinary expenses," his report said Wednesday.

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