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New York Readying Budget Cuts to Address Revenue Losses (1)

April 27, 2020, 8:14 PM; Updated: April 27, 2020, 9:35 PM

New York officials are planning for an initial round of $10.1 billion in spending cuts from a $177 billion state budget enacted at the start of April, and they warn that several years of fiscal pain likely lie ahead.

Tax receipts have been hammered by the coronavirus pandemic since the last formal revenue estimate in mid-February, according to the state Budget Division. The April portion of the revenue losses, when officially tallied at the end of the month, will trigger authority for the Budget Director Robert Mujica to declare the state’s finances out of balance and begin to cut spending.

A state plan released Saturday laid out broad categories for possible reductions, with the specific cuts to be submitted to lawmakers in May. Those proposed cuts would go forward unless the Legislature responds with a plan of its own within 10 days, Budget Division spokesman Freeman Klopott said Monday. The state’s latest estimate for revenue losses over the current April-March fiscal year is $13.3 billion.

The new budget outlook assumes that the revenue shortfall won’t be a one-year problem but will cost the state an estimated $61 billion through March 2024. It was accompanied by an economic impact assessment by Boston Consulting Group estimating that the New York economy will lose $243 billion—or the equivalent of 14% of its pre-Covid-19 gross domestic product—over the course of a deep, three-year recession.

The spending cuts, to be drawn up under legislative provisions giving the state budget director unprecedented powers during the April-March fiscal year, take into account federal stimulus funding approved by Congress that offers “almost no unrestricted aid to replace the severe loss in expected state tax receipts,” according to the state financial plan.

“Unlike the federal government, New York State must balance its budget, and in the absence of federal assistance, we will have to make deep cuts which could impact a broad range of services,” Mujica said in a statement. “New York reflects 8% of U.S. GDP, and without federal support our ability to help lead the nation to economic recovery will be weakened.”

The New York State Association of Counties, reacting Monday to the state’s latest revenue loss estimate, said that county leaders are facing similar deficits and “are in no position to backfill state funding cuts.”

The group called for federal stimulus that includes direct funding to states and local governments to make up for lost revenue and increased costs.

Also on Monday, a coalition of seven good-government groups, led by the nonpartisan Citizens Budget Commission, called for state officials to offer more transparency into the newly established budget modification scheme, which allows for mid-course changes in May, July, and January.

“The pandemic and uncertain availability of federal assistance have created unprecedented stress throughout the State’s economy,” the groups wrote in a letter to Gov. Andrew M. Cuomo (D) and legislative leaders. “While flexibility to address this crisis is needed, including amending the financial plan as circumstances change, providing as much advance notice as possible will allow localities and agencies facing budget cuts to plan and manage the impact.”

—With assistance from Keshia Clukey in Albany, N.Y.

(Updates with details from Monday letter beginning in ninth paragraph.)

To contact the reporter on this story: John Herzfeld in New York at jherzfeld@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; David Jolly at djolly@bloombergtax.com

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