Due to the COVID-19 pandemic and resulting shutdown and the deliberate reopening of its economy, New York State is currently running a staggering $15 billion deficit in its $178 billion 2020-21 fiscal year budget. The deficit is attributable to forgone revenue from diminished State sales tax receipts, which are already $3.2 billion lower than in 2019, and personal income tax collections, which are $1.4 billion or 6.8 percent lower than a year ago, and from increased costs in dealing with the pandemic. New York State Comptroller Thomas DiNapoli indicated that the sales tax revenues for August were $220 million less than a year ago, but were a surprising $310 million more than earlier projections, which offers some optimism that the deficit projections made at the height of the pandemic may not be realized.
The State has received approximately $9 billion in federal aid since the pandemic began for COVID-19-related costs, Medicaid and education, but Governor Andrew Cuomo, State legislative leaders and New York’s Congressional delegation have all called on the federal government to provide additional funding in order to avoid steep cuts in State funding for education, local aid and healthcare.
Nonetheless, in an effort to abate a further increase in the deficit, the Cuomo Administration has engaged in short-term borrowing and lowered State spending by nearly $4 billion, chiefly through withholding $1.7 billion in aid to localities funding, freezing hiring, holding new contracts and deferring scheduled pay raises for public employees.
While there was speculation that the State Legislature might return last month to consider modifications to the State budget and additional sources of revenue, that did not occur, and the expectation is that the Legislature may now return after Election Day. Various revenue proposals reportedly have been under consideration by lawmakers, including higher income taxes on those with an annual income of more than $1 million, a new tax on those with more than $1 billion in assets, a property tax on second homes in New York City valued at over $5 million and co-ops and condos assessed at more than $300,000 (i.e., pied-a-terre tax), and eliminating state rebates on stock transfers.
Whether such proposals and/or cuts in State funding will be approved is expected to be heavily dependent on whether the federal government will provide additional funding to states and localities following the November elections. In the interim, we expect New York State will continue to function under significant fiscal stress, which will impact its spending for the foreseeable future.