Government budgets are always a guessing game. How much will come from taxes? Is spending accurately projected? Will unforeseen circumstances ruin the plan? In that sense, both New York state and city have managed their finances well in recent years. An improving economy has boosted tax revenue more than expected, and nothing too dramatic has changed the numbers.
But the days of easy budgets are over. The plans to be adopted by the state by April 1 and the city by July 1 will be precarious at best. Unfortunately, rare is the politician who is able to admit that.
Start with the numbers. Gov. Andrew Cuomo’s proposal increases state spending by 3.8% to $162.2 billion, and legislators are almost certain to push that figure higher, especially for education. Mayor Bill de Blasio’s new budget would add $1 billion to this year’s, bringing the city’s spending to $84.7 billion, almost $15 billion more than Michael Bloomberg’s last effort four years ago.
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Here’s what can go wrong.
Odds are tax revenue will fall short. Collections have come in below projections in recent months, and a clear slowdown in the city economy in the fourth quarter seems likely to exacerbate the problem. State tax revenue is running at 1% behind last year’s pace.
Federal tax reform could worsen the problem. If a plan to cut taxes gains momentum in Washington, many people will delay selling assets in hopes that the capital gains tax will be reduced. That would cause a major shortfall in income taxes that could be made up only after tax changes take effect.
Federal aid has become a big question mark. With Republicans in control of the White House and Congress, the chances of a significant reduction in aid to the state and city are higher than ever. State Comptroller Thomas DiNapoli says $54 billion of the state’s budget comes from the feds. That’s $1 of every $3. The city now gets about $7 billion from Washington—roughly 8% of its budget but still a significant amount.
Health care could change the entire equation. No one knows what President Donald Trump’s vow to repeal and replace the Affordable Care Act means. It is pretty clear that conservative Republicans just want to repeal it in order to pare the social safety net. Cuomo and others have said they will ensure New Yorkers don’t lose coverage, but the cost to do that could be substantial. The state says it’s at risk of losing $3.7 billion and counties, $600 million. The state also would have to decide whether to pick up federal subsidies for those purchasing insurance on the exchange.
Some might say all those things won’t go wrong. The state has accumulated some reserves, and the city’s even larger cushion could handle one or two of the eventualities. Federal budget changes might be phased in over several years, especially Obamacare reform, and the economy might pick up again.
But the risks are big. And, unfortunately, too many politicians are willing to take them.
Government budgets are always a guessing game. How much will come from taxes? Is spending accurately projected? Will unforeseen circumstances ruin the plan? In that sense, both New York state and city have managed their finances well in recent years. An improving economy has boosted tax revenue more than expected, and nothing too dramatic has changed the numbers.
But the days of easy budgets are over. The plans to be adopted by the state by April 1 and the city by July 1 will be precarious at best. Unfortunately, rare is the politician who is able to admit that.
Start with the numbers. Gov. Andrew Cuomo’s proposal increases state spending by 3.8% to $162.2 billion, and legislators are almost certain to push that figure higher, especially for education. Mayor Bill de Blasio’s new budget would add $1 billion to this year’s, bringing the city’s spending to $84.7 billion, almost $15 billion more than Michael Bloomberg’s last effort four years ago.
Here’s what can go wrong.
Odds are tax revenue will fall short. Collections have come in below projections in recent months, and a clear slowdown in the city economy in the fourth quarter seems likely to exacerbate the problem. State tax revenue is running at 1% behind last year’s pace.
Federal tax reform could worsen the problem. If a plan to cut taxes gains momentum in Washington, many people will delay selling assets in hopes that the capital gains tax will be reduced. That would cause a major shortfall in income taxes that could be made up only after tax changes take effect.
Federal aid has become a big question mark. With Republicans in control of the White House and Congress, the chances of a significant reduction in aid to the state and city are higher than ever. State Comptroller Thomas DiNapoli says $54 billion of the state’s budget comes from the feds. That’s $1 of every $3. The city now gets about $7 billion from Washington—roughly 8% of its budget but still a significant amount.
Health care could change the entire equation. No one knows what President Donald Trump’s vow to repeal and replace the Affordable Care Act means. It is pretty clear that conservative Republicans just want to repeal it in order to pare the social safety net. Cuomo and others have said they will ensure New Yorkers don’t lose coverage, but the cost to do that could be substantial. The state says it’s at risk of losing $3.7 billion and counties, $600 million. The state also would have to decide whether to pick up federal subsidies for those purchasing insurance on the exchange.
Some might say all those things won’t go wrong. The state has accumulated some reserves, and the city’s even larger cushion could handle one or two of the eventualities. Federal budget changes might be phased in over several years, especially Obamacare reform, and the economy might pick up again.
But the risks are big. And, unfortunately, too many politicians are willing to take them.
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