DiNapoli releases analysis of state financial plan

After two years of extraordinary volatility in state finances, the 2022-23 state budget financial plan from the state Division of the Budget projects fiscal stability for the next five years and includes plans to bolster rainy day reserves significantly, according to a report by State Comptroller Thomas P. DiNapoli.

However, DiNapoli’s analysis identifies several revenue, spending, and sustainability risks that could disrupt the financial plan that should be monitored closely.

“Amidst tremendous uncertainty, the state’s fiscal position is currently stable, providing an opportunity to build reserves that should not be lost,” DiNapoli said. “While the state Financial Plan expects revenue growth to continue, economic risks are growing and may jeopardize the state’s fiscal footing. Making deposits to the rainy-day reserves on or ahead of schedule may help prevent disruptions in critical programs and services.”

The financial plan projects disbursements in 2022-23 of $222.2 billion from All Funds, including $122.7 billion from State Operating Funds. General Fund disbursements (including transfers to other funds) are projected by DOB to total $96.1 billion in SFY 2022-23, increasing to $115.8 billion by SFY 2026-27, for an average annual growth of 4.8%. General Fund receipts are projected to total $88.3 billion in 2022-23, growing to $113.2 billion by 2026-27, reflecting average annual growth of 6.4%. While planned disbursements exceed receipts in some years, the financial plan indicates that surplus general fund resources, mostly accumulated in 2021-22, will be used to balance the budget in 2022-23 and the out-years.

DOB’s projected growth in General Fund spending reflects continuing temporary funding for pandemic recovery and the health care and direct care workforce in 2022-23, as well as significant growth in spending over the financial plan period in school aid and Medicaid.

Spending may escalate beyond the current financial plan projections. For example, the Financial Plan assumes Medicaid enrollment will peak at nearly 7.7 million in 2022-23 and return to near pre-pandemic levels of 6.1 million in 2023-24. If Medicaid enrollment declines at a slower rate than projected or fails to decline as much as projected, the state will incur significant additional costs.

Over the longer term, the elevated level of General Fund spending may be difficult to sustain as temporary resources are depleted or expire. Notably, the American Rescue Plan included $12.7 billion for New York state that may be used for a wide range of purposes, including to cover loss of revenues due to the economic impacts of COVID-19. The state Division of Budget intends to transfer this funding to the General Fund over four fiscal years. While spreading out the use of these funds over several years is prudent, the Division of Budget indicates that the majority of the 2021-22 funding went to “government services.” Without greater detail, it is difficult to assess to what extent the temporary funds are sustaining recurring spending. However, the temporary funding is a significant factor in the projected General Fund balance throughout the Financial Plan period.

The Financial Plan’s reliance on certain 2021-22 Enacted Budget actions, including temporary personal income tax increases on high earners, creates additional risk. In 2019, taxpayers with incomes of at least $1 million represented 1.2% of total taxpayers and provided 38.2% of liability. The temporary personal income tax rate increase results in the state being more dependent on high-income taxpayers; these taxpayers typically have income from more volatile sources, such as capital gains.

Personal income tax revenues are also reliant upon taxpayers, particularly high-income taxpayers, continuing to be residents of New York. According to analysis by the Office of the State Comptroller a larger number of taxpayers moved out of New York than moved in annually from 2015 to 2019. While this occurred at every income level, the number of taxpayers with incomes over $1 million that left the state were nearly double those that moved in.

Over the life of the financial plan, temporary tax rate increases in personal income taxes and corporate franchise taxes and largely unrestricted federal aid are expected to total $27.6 billion or more than 5% of General Fund spending over the Financial Plan period. By the end of the plan period, when the personal income tax rate increase is slated to expire, nearly $4 billion in annual resources would become unavailable.


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