|Nathaniel Brooks/NY Times photo|
Here's the lede from an Albany Times Union article earlier this week:
New York state is facing an unexpected $2.3 billion shortfall - the most significant in eight years - due to a sharp drop in income tax collections for December and January, state Comptroller Tom DiNapoli and Gov. Andrew M. Cuomo revealed on Monday.
The governor, who had announced his $175 billion spending proposal for 2020 last month, cast blame on the federal government, attribution the drop largely to the 2017 federal rollback of the state and local tax deduction, known as SALT, which he said was designed to penalize Democratic "high-tax" states. "Everything we did economically is right," Cuomo said Monday. "We tightened our belt, we cut taxes, we're creating jobs, and here's a penalty just because we are Democrats."The article in the Buffalo News started out with this:
Less than three weeks after he proposed his 2019 state budget, Gov. Andrew M. Cuomo on Monday raised red flags over slipping tax revenues and suggested that some popular items in the fiscal plan, including state aid to schools, could face cuts from what he offered in mid-January.
Calling the situation "as serious as a heart attack," the Democratic governor said revenues are $2.3 billion below projections for the fiscal year that ends March 31. That is on top of a $500 million revenue dip form personal income taxes that the Cuomo administration recently projected when it put together a budget plan last month.And here's how City and State NY presented the news:
The flashy and progressive $175.2 billion executive budget Gov. Andrew Cuomo presented last month just rain into a roadblock earlier this week when the governor and New York state Comptroller Thomas DiNapoli announced a $2.3 billion shortfall in income tax revenue - on top of the $500 million dip in revenue at the end of last year. Cuomo and DiNapoli both have pointed to the 2017 federal tax law capping how much of their state and local taxes (known as SALT) that income tax filers can deduct from their federal tax liability as a force that caused some of the state's high earners - who contribute a significant amount to the state's income tax revenue - to flee to states with lower taxes.Let's take a deeper look.
If you're wondering why the 'Christmas tax cut' the president gave us in 2017 is having an impact now, the TU explains it this way:
The federal tax measure, which placed a $10,000 cap on SALT deductions, went into effect last year. Cuomo said the majority of homeowners impacted chose to file their 2017 taxes early to take advantage of the benefit before the change went into effect.
Because of this, the state anticipates that the full fallout of the SALT cap will be felt in 2019.The paper noted DiNapoli had some anecdotal information that people were leaving NY or changing their primary address (to a second home in a place with lower taxes, I'm assuming) and that "Wall Street volatility" could also have been a contributor, given how horrible the fourth quarter was. He also said
This is the most serious revenue shock New York has faced in many years. And that $2.3 billion figure will frankly get worse before it gets better.The big issue is that a very small number of people account for a huge percentage of the state's income tax. From the Buffalo News article:
Cuomo said the super-wealthy in New York - accounting for 1% of tax filers - end up paying 46% of the personal income taxes the state collects each year.
"Tax the rich. Tax the rich. Tax the rich. We did that. God forbid the rich leave," Cuomo said of a mobile group of people who can more easily switch residences to states with lower state and local tax levels.The Sonofa Gov has faced bigger deficits - it was $10 billion during his first year - but now that the feel-good cost little items on the progressive agenda have been worked on, it's time for the legislature to get to work on the stuff that will actually cost the state money.
Cutting spending, as Cuomo did back in 2011, is an option, and of course so is raising taxes - something that the Republicans don't seem to want any part of. Again from the TU:
Senate Minority Leader John J. Flanagan, in a statement, said that he fears Democrats will use the deficit as an excuse to increase taxes on middle-class New Yorkers.
"We cannot allow this to happen," Flanagan said. "It's imperative that we balance the budget without resorting to tax increases, enact the spending cap into state law, and make the property tax cap permanent to bring certainty to homeowners and seniors. Budgeting is about choices, and it's time for Gov. Cuomo and legislative Democrats to make the right ones."At the same time we were getting the bad news from Cuomo and DiNapoli, there was a rally to get $100M for child care subsidies - with even Republicans in attendance, illustrating the difficulties that the legislature is going to face.
Education and health care are the biggest budget items, but there aren't any plans yet on what can be cut. Assembly Speaker Carl Heastie said
It is way too early to say what we can do and cannot due and where we're going.And, of course, there's also planning to protect us again deficits down the road, too. DiNapoli, speaking to City and State NY noted he was "pleased" that Cuomo had included $488M to reserves in his budget but
What I said the other day is I think perhaps it should be put on the table that we need to boost that figure even more. If this is going to be a problem for us not just to close out this year and the coming year, but in the next couple of years - God forbid it really gets worse - if you have more adequate reserves, that could help you weather the storm. I would argue we made a mistake not to build up the reserves more in the past. Even though it's a more challenging budget now, we would be smart to not only include what the governor proposed but add some more to that.Reduce spending? Raise taxes (please say NO!)? Save for a rainy day?
There will be some hard choices for folks to make in the coming weeks, with the budget due on April 1st - before the tax filing deadline. It will be an interesting process this year, one that will surely put the Dem majority to the test.