Financial position stable in upstate New York, clouds on the horizon

On November 4, the New York State Division of the Budget (DOB) released its mid-year update of the 2023 State Fiscal Year (SFY) approved budget and financial plan. The semi-annual report covers the first half of SFY 2023, from April 1, 2022 to September 30, 2022. In line with the DOB Q1 update released in August, government finances are generally said to have been in a good position on the way into the second half of the financial year. The report attributes its positive outlook in part to higher-than-expected General Fund revenue and lower-than-expected expenses. The decrease in government spending was attributed to additional funding provided through the Enhanced Federal Medical Assistance Percentage (i.e., temporary increases in federal funding to support the state’s Medicaid program), which were extended through the final quarter of the current state fiscal year (January 2020). –March 2023).

The DOB’s projected budget gaps for the 2024-2027 SFYs have also been revised downwards in anticipation of additional revenue related to business tax and mobile sports betting revenues. The DOB analysis places the state’s income tax revenue in balance for the immediate future, noting a $1.5 billion increase in revenue compared to previous estimates in the DOB first-quarter update. In contrast, recent Office of the State Comptroller reports present less optimistic forecasts for state income tax collections, citing an estimated 7% decline in collections between SFY 2023 and SFY 2024. The DOB projects a General Fund budget gap of $148 million in SFY 2023-24 and budget gaps of nearly $3.5 billion in SFY 2024-25, $3.3 billion in SFY 2025-26 and 5 $.9 billion in SFY 2026-27. However, the report warns that a number of factors could negatively affect the state’s current fiscal position, including the ongoing risk of a broader national economic recession, and highlights the Hochul administration’s ongoing efforts to mitigate these risks by investing in the “rainy days”. the state’s reserves, which totaled $9 billion at the end of SFY 2023 and are projected to reach $19.5 billion by SFY 2025.

The diverging views of the DOB and the Office of the State Comptroller on the state’s medium- and longer-term fiscal projections are not out of character, but will remain of interest to the state and stakeholders as New York approaches its SFY 2024 fiscal cycle through January 2023 The Manatt team will continue to monitor Albany tax developments and remain available to answer any questions.