The headline in Comptroller Thomas DiNapoli’s October cash report was that state tax collections "continue to lag projections." Indeed, by Oct. 31 they had fallen $170.8 million below July estimates and $259.8 million below initial estimates.
Missing the mark by $170.8 million on total collections of $35.9 billion might not seem like much. But here’s something to keep in mind: The numbers through October do not reflect the impact of Hurricane Sandy, which slammed into New York City’s financial district and devastated portions of Brooklyn and other boroughs.
In other words, the gap between earlier projections and actual tax revenues is certain to grow in coming months. "Tax revenue estimates should be revised downward," Mr. DiNapoli said. "As (Sandy) recovery efforts continue, realistic projections are critically important for the state to effectively manage its available resources."
This is not the first time the comptroller warned of clouds on the fiscal horizon. In his statement on the state’s July cash report, he noted that "New York’s fiscal picture remains tied to the strength of the economic recovery, (which) has deteriorated in recent months."
Thankfully, the economy statewide appears to have stabilized. But longer-term challenges that were apparent before Sandy remain.
As noted here in July, the need for federal deficit reduction looms largest, certainly in the near term. It’s anyone’s guess how the fiscal cliff negotiations will turn out, but New York could be affected in several ways.
On the spending side, New York could see cuts in grants under entitlement and discretionary programs, along with lower direct federal expenditures ranging from procurement to salaries. On the tax side, reform could limit the deductibility of state and local taxes on federal returns-and the impact here would be sharper than perhaps in any other state, thanks to New York’s high state and local taxes.
Underfunded pensions and other longer-term challenges also exist; these were detailed in a recent task force report.
For all these reasons, Mr. DiNapoli’s words of warning about the state’s fiscal situation should be heeded in Albany.
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