Crain's New York Business.com
By Daniel Massey, Published: July 30, 2009 - 3:34 pm
Plummeting sales and income tax receipts have driven a gaping $2.1 billion hole into New York state’s budget, according to a report released Thursday by the Division of the Budget.
Gov. David Paterson will team with Lt. Gov. Richard Ravitch to devise a plan to eliminate the gap by early fall.
“New York, like virtually every state in the nation, continues to experience historic economic difficulties, and further action is needed to control spending,” Mr. Paterson said in a statement.
Income tax collections nose-dived 35% in the first quarter of the 2009-10 fiscal year versus the year-earlier period, hitting $7.7 billion. The drop was $584 million more than had been projected in May. And sales tax collections fell 6%, to $2.6 billion. The falloff was $159 million worse than expectations. Both declines are worse than those the state experienced following the Sept. 11 terrorist attacks.
Total wages across the state are projected to fall 4.8% in 2009, the largest drop ever recorded, producing a ripple effect that will affect virtually all of the state’s revenue sources over the next four years.
“How significant the wage drop is correlates very closely with the performance of the financial services sector,” said Robert Megna, the state’s budget director, during a conference call addressing the report. “It’s clear that when they have a problem, it’s going to have a big impact on wages.”
Reduced investment returns, lower lottery receipts and increasing public-assistance costs have also contributed to the gap. Lawmakers cut more than $17 billion in the spring to produce a $131.8 billion budget for the current fiscal year, but Thursday’s report showed that new spending cuts—or new revenue—will be needed.
The budget deficit is projected to grow to $4.6 billion in 2010-11, up $2.2 billion from the estimate in May, and it will reach a cumulative $38.2 billion over the next four years, officials said.
The state’s general fund may be in negative cash flow by November or December, prompting it to borrow from other state funds on a short-term basis, Mr. Megna said.
New York is not alone in its budget woes. Since mid-May, at least 14 other states and Washington, D.C., have reported midyear deficits totaling $30 billion.
“While announcing a $2 billion problem is not something we’re happy to do, we think that in the context of what’s happening around the country, especially in the big industrial states, we’re in a pretty good situation,” Mr. Megna said.
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