State Budget Negotiations

March 1, 2020

As state budget negotiations continue, we’ve reached a critical juncture in the process. Lawmakers and the Executive must agree on a ‘revenue number’ that represents the amount of money that will be available (beyond what is required to pay for reoccurring base state budget expenses) for lawmaker priorities like our 3FOR5 3% increase, etc.

Arriving at a number is never easy for lawmakers as you will read below. And now economic advisors are looking at new factors including a potential recession due (in part) to concern over the impact of the corona virus.

Apparently there is $700 million that lawmakers will have to spend on stakeholder ‘asks’ beyond the amount required to meet basic state obligations for the next two years. This is NOT a lot of money at all for all of the major ‘asks’ being advocated for by various groups.

Note that the projection made by Assembly Dems ($1.751 billion) is a number representing what they believe will be available for both the end of this fiscal year AND next years budget combined. This is not a big number.

Legislature, Cuomo agree on $700M in additional revenues

By Anna Gronewold
03/01/2020 01:45 PM EST, Politico

The governor and Legislature have coalesced around the amount of money the state is able to spend this year, as budget talks move from conceptual to concrete in anticipation of the March 31 deadline.

Following a forecasting conference on Thursday, Senate and Assembly leadership agreed with Gov. Andrew Cuomo’s estimate that revenues could be projected as $700 million above the original two-year total outlined by the administration. The Senate and Assembly had both projected more than $1 billion in additional revenues.
The current outlook is colored by the ongoing equity market correction related to the spread of coronavirus, which “poses evolving downside risk to economic activity,” the consensus report notes.

Taxpayer behavior in response to federal policy, financial sector bonus payments and the extent and timing of interest changes from the Federal Reserve could also impact actual results in the coming year, according to the three parties.

From the article below:”In their individual assessments, Democrats who dominate the Assembly are predicting an additional $1.751 billion over the executive proposal to spending the end of this fiscal year and the one that starts April 1, while Senate Democrats have projected an additional $1.1 billion.

A consensus number among the three parties must be reached by March 1.”

POLITICO

Coronavirus, possible recession loom over state revenue forecast
By Anna Gronewold, Politico

02/27/2020 04:41 PM EST
ALBANY — A meeting that traditionally kicks off budget talks in earnest has concluded with experts expressing various degrees of caution about the effects of coronavirus on the state’s economic outlook.
Fiscal experts from the public and private sector convened Thursday morning in the Capitol to help top lawmakers agree on how much money the state has on hand to spend, with little more than a month before they must pass a budget.
The Economic and Revenue Forecasting Conference mandated in state law is a panel of independent projections for how many jobs will be created in the state, how the stock market will perform and how Washington’s policy changes might affect the New York’s wallet.
This year’s conference comes just as markets reflect worldwide uncertainty about the scope and timeline of rapidly spreading coronavirus. Those developments have been so recent that Chris Varvares of Macroeconomic Advisers told the panel of Senate, Assembly and executive budget representatives that “the forecasts we have in front of us are somewhat outdated today.”
Should the virus spread further in the United States, officials could see the possibility of a pullback in consumer services, factory and office closures, and virus-induced agoraphobia that will limit consumer spending, he said.
But Varvares said that in his view, dramatic market reactions are the results of uncertainty, rather than risk, and aren’t yet projections that should be taken into long-term planning.
“To the extent that we get clarity on just how bad this will be, the financial markets will snap back rather sharply and considerably,” he said.
But Hugh Johnson, an Albany-based economist, had a less-rosy outlook, saying he’s generally of the mind that financial markets — investors — are good predictors of the seriousness of a situation. He’s doubly wary as the country is 130 months into a bull market and at the 127-month mark of the economic expansion, the longest in history, a point he reiterated several times. The state comptroller’s office has repeatedly warned that the state is not fiscally prepared for economic downturn or catastrophic event.
“Again, trees do not grow to the sky … Sooner or later we must ‘pay the piper,’” he wrote in his analysis, and he told New York’s budget makers “this could be the end of the cycle, which makes your job very difficult.”
Assemblyman Ed Ra (R-Nassau) asked how cautiously the Legislature should proceed when creating spending targets in light of that uncertainty.
“I don’t know if you call it a 2 percent rule or what you call it but I wouldn’t ignore that,” Johnson said, referring to Gov. Andrew Cuomo’s self-imposed 2 percent spending growth cap, which he has held to every year except for last, when state operating funds growth was 3.7 percent.
Gov. Andrew Cuomo’s budget director Robert Mujica opened the panel by warning his peers to be alert to volatility in financial sector bonus payments and capital gain realizations, as New York’s economic stability relies heavily on growth in personal income taxes.
To that end, the Cuomo administration remains concerned about the federal tax law that placed a $10,000 cap on the deduction for state and local taxes, used by high-earners in New York. The top 2 percent of New York taxpayers — about 188,000 filers — pay about 50 percent of the personal income base, and could be headed elsewhere in response, Mujica said.
“Losing even a small percent could hamper the progressivity of our tax code and [inhibit] our ability to deliver on investments in health care, education and infrastructure that New Yorkers have voted for again and again,” he said.
But Sen. Liz Krueger (D-Manhattan) said criticizing the SALT cap isn’t as productive as planning for its long-term effects.
“I don’t agree with the position that the federal government took and I’m sorry that they did what they did but I suspect we’re not reversing this anytime soon, even with a different president, so the question is … how is New York going to adjust for this as a reality in our own planning and thinking,” she said.
In their individual assessments, Democrats who dominate the Assembly are predicting an additional $1.751 billion over the executive proposal to spend in the end of this fiscal year and the one that starts April 1, while Senate Democrats have projected an additional $1.1 billion.
A consensus number among the three parties must be reached by March 1.