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Comptroller’s report paints grim picture

By Tom Wanamker

ALBANY — New York's dismal financial outlook is getting bleaker, but because the economy appears to be deteriorating as fast as it can be analyzed, the final prognosis has yet to be written.

In a special quarterly report released Monday, the New York State Comptroller's Office said that business taxes are down 13 percent compared to last year. And while personal income tax revenues continue to grow, that growth is slowing rapidly and could soon turn into an actual year-over-year decline. Further deterioration in tax revenue will push the state's bottom line even further into the red.

“The state started the fiscal year with surprisingly strong personal income tax collections that fueled growth in state revenues. But that growth is falling off and things are looking very shaky,” said Comptroller Thomas P. DiNapoli in a statement accompanying the report. “Personal income taxes will likely decline significantly when Wall Street bonus payments drop off in December and January.”

Approximately one-fifth of the state's income tax revenue is generated on Wall Street, in the form of salaries, bonuses and capital gains taxes. Once those lower-than-expected bonuses are paid, a more precise picture of the state's fiscal picture will emerge, the comptroller said.

“But even without the bonus numbers, it's clear that despite the state's current year spending reductions, the state faces potentially unprecedented deficits,” DiNapoli said.

The governor's budget division has projected a $1.2 billion budget deficit for the current fiscal year, which ends March 31, 2009, while Gov. David Paterson himself has intimated this gap could grow to $2 billion.

In late September, the comptroller reported that New York could see $3.5 billion in tax revenue dry up by March 2010 because of Wall Street's problems, and estimated related job losses in the neighborhood of 40,000. Earlier this month, DiNapoli’s office projected a budget deficit of more than $26 billion over the next three years.

Among the report's highlights:

n Through September, state revenues were up 10.6 percent over the first six months of fiscal year 2007-08 due in large part to a higher-than-expected settlement of personal income tax liabilities from 2007.

n State spending through September was 3.9 percent higher than the comparable year-ago period. Though below projections, this growth came primarily from lower-than-expected local assistance payments.

n The 13-percent skid in business tax collections breaks down as follows — corporate franchise taxes, down 17.6 percent; bank taxes, down 12.5 percent, and insurance taxes, down 10.8 percent — in the six months ended Sept. 31. Business tax collections have fallen below projections during each month of the current fiscal year, despite the fact that those projects have been lowered twice.

n Other General Fund tax collections jumped by 47.3 percent, due largely to estate tax receipts in July. Consumption taxes, including sales taxes, increased less than one percent versus the first six months of fiscal year 2007-08.

Paterson has requested that the state Senate and Assembly reconvene in Albany on Nov. 18 to determine how to cut an additional $2 billion from the state budget. The governor will also issue his executive budget for 2009-10 in December, a month earlier than usual, to foster further debate on how to reduce out-year deficits.

“The governor has made the right call to bring the Legislature back to address the state's finances,” DiNapoli said. “Now is the time to carefully evaluate our priorities and take a sensible, balanced approach. We should not look for quick fixes that could create more problems. New York needs long-term solutions that don't make an already bad situation catastrophic.”

The complete special mid-year report is available online at www.osc.state.ny.us/reports/budget/2008/statefinancialplan102008.pdf.

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