On August 13, the New York State Division of Budget (NYSDOB) released its first-quarter (Q1) updates to the state fiscal year (SFY) 2020-21 financial plan, providing some of the first clear indicators of the state’s financial position as it navigates the COVID-19 pandemic and the economic impacts associated with the virus. The report notes COVID-19-response-related efforts as contributing fiscal pressures on the state’s budget, including but not limited to expenditures associated with the state’s response, tax revenue impacts, and uncertainties around future federal aid to the state and municipalities. The report also provides additional insight into actions the state has taken and plans to take to answer these challenges, including reductions to disbursements, changes to state operations spending and federal funding offsets.
The report paints a grave picture measured against the financial projections released by NYSDOB in February (pre-COVID-19), with revised forecasts predicting a $62 billion decline in state receipts over the five-year financial plan, reflecting a 13.5% decline in receipts in SFY 2020-21 alone. These decreases translate into a $14.5 billion reduction in the state’s general fund. Tax receipts declined by 15.3% due to a delay in state and federal tax filing deadlines and a marked decrease in economic activity during periods of shutdown statewide. This decrease was related to a decrease in sales and use tax receipts rather than personal income tax receipts, which were reported to be largely on track from February estimates.
Language in the SFY 2020-21 budget provided broad authority to the director of the budget to make adjustments to certain disbursements from budgetary appropriations in the event that the state’s budget had fallen out of balance during the course of any of a set of measurement periods during the fiscal year. The Q1 update indicates that the budget is out of balance, and reductions in state spending and disbursements are necessary to assist in rebalancing the state’s budget. While the Governor had foreshadowed these reductions in earlier remarks, the recent update makes clear that NYSDOB has been holding back disbursements, and is scheduled to continue to hold back 20% of appropriated disbursements to local aid organizations where allowable and appropriate. These initial adjustments have yielded $1.9 billion in savings in SFY 2020-21 through July and, absent additional federal funding, are targeted to yield $8 billion in savings in the fiscal year overall (see inset schedule below for Local Aid detail through July). The report states that the NYSDOB plans to deliver to the Legislature sometime during the second quarter a detailed aid-to-localities reduction plan required to make further adjustments. The update to the financial plan further notes that these adjustments may be made permanent, or they may be altered to reduce their impacts should the receipt of “substantial new recovery aid” allow the reductions to be mitigated.
Additionally, state agencies have been directed to reduce their operating budgets, with an intent to cut those expenditures by 10%. Among other measures, agencies have instituted a hiring freeze and have frozen wage increases under measures instituted April 1, 2020, to affect the NYSDOB goals of yielding $980 million in this fiscal year and upward of $1 billion in each subsequent year.
In comments accompanying the release of the update, the director of the budget reiterated the Cuomo Administration’s recent calls for rapid and meaningful additional federal funding for New York, noting that “[t]he Federal government must put an end to its months of dithering and deliver funding to states[,] because if they don’t the temporary withholdings turn into permanent reductions, which would have devastating impacts on schools, hospitals, police and fire departments, along with other critical services, and weaken New York State’s ability to lead the national economic recovery as the producer of nearly 10% of national GDP.”
The Manatt team will continue to monitor New York State budget developments and looks forward to providing you additional detail and analysis as information becomes available.