Over the past four months, New York’s cumulative four-year budget gaps have narrowed by more than $35 billion. That’s according to a report issued this week by state Comptroller Thomas DiNapoli.
What was once a $38.7 billion four-year gap in the 30-Day Amended Executive Financial Plan is now just $3.4 billion.
Two major reasons for that turnaround are an influx of federal funds and tax hikes and revenue streams approved in the fiscal 2021-22 budget.
A COVID-19 economic recovery that’s gone better than expected has also helped, the report stated.
“The state’s economic and fiscal outlook have improved,” DiNapoli said in a statement. “Local sales tax collections are up significantly, and our May Cash Report shows the state is $4 billion ahead of projections. It is essential that additional resources are used for critical infrastructure projects to reduce debt issued and to bolster reserve funds beyond planned levels to help us to weather the next crisis or recession.”
As the state’s financial outlook is becoming rosier, DiNapoli recommends increasing deposits to the state’s rainy day funds. Currently, only $825 million is scheduled to be deposited into the reserve funds this year. That will put the total amount at $3.3 billion.
That’s less than two weeks’ worth of spending and just slightly better than half the $6.4 billion cap on reserves.
DiNapoli’s report noted that the state’s tax revenues have surpassed projections by $4 billion through the first two months of the fiscal year.
“To the extent that collections remain above forecast and are not needed to cover unanticipated expenses, these unanticipated revenues should be used to further bolster the rainy day fund reserves,” the report said.
Two years ago, DiNapoli recommended the state grow its reserves to ensure essential spending can be maintained even during times of crisis.
Among the other recommendations DiNapoli’s office made in the report included monitoring high-income taxpayer behavior.
The budget lawmakers passed in April set a top personal income tax rate at 10.9% through 2027, with new brackets for people making more than $5 million and $25 million.
Back in April, the state forecast raising $3.5 billion this year and $4.3 billion next year as a result of the increases in personal and corporate income taxes.
“The combination of this high reliance, volatility of capital gains, and the possibility of taxpayer migration in reaction to the high new rates creates a risk for the Financial Plan that should be carefully monitored to ensure appropriate and timely responses to any shortfalls in PIT receipts are developed,” the report said.
The report also urged the state against using American Rescue Plan funding to pay for ongoing spending.
Federal COVID-19 funding can be used to address shortfalls, but creating new long-term programs could strain state coffers down the road.
“The Financial Plan indicates the state prudently plans to use much of its federal aid to provide temporary and necessary assistance to struggling New Yorkers and businesses; to the extent the recovery gains momentum and these programs are successful, their need will wind down with the funding available,” the report said.
This article was originally posted on Federal funds, rise in tax proceeds dramatically narrow New York’s budget gap, report says