Budget issues loom about what spending to cut as revenues shrink for the state and localities

Among the crises facing this country as it battles the COVID19 crisis, one has not really seen the light of day yet, but that day is coming soon. Actually there will be many such days ahead.

A strong and surprisingly bi-partisan majority of the public as well as business leaders seems to be supportive of cautious actions to get businesses, schools and other organizations re-opened. At the end of the day it will be up to all of us, individually, to decide when we consider it is safe and appropriate to venture out even after public policy says it is okay.  Everyone wants to see the economy starting up as soon as possible; we just don’t know when “as soon as possible” will be.

In the meantime health care facilities plus state and local governments are carrying the load in providing up front services to the public in all sorts of ways. At the same time health care facilities plus state and local governments are hemorrhaging revenues that in better times produce the resources to provide needed services.

State and local budgets, unlike the federal government, need to have their budget revenues and expenses in balance. At this time both sides of the ledger are taking a huge hit.

Like the pandemic, collapsing government revenues occurred very quickly. It was a little more than a month ago, for instance, when the New York State Legislature and Governor Andrew Cuomo were doing their annual kabuki dance about state revenues and were coming to a consensus that there would be an additional $700 million available for the 2020-2021 budget.

But then the bottom dropped out. The Legislature, for social distancing purposes, changed its meeting arrangements.  The April 1 deadline for approving the budget came and went and an official budget document of sorts was completed a couple days past the due date.  It was done mostly in secret by Cuomo and legislative leaders.

And it was mostly a fiction. The total adopted budget was not much different than what Cuomo originally proposed in January, but along with the budget was legislative authorization allowing Cuomo to at least quarterly for the next year amend the budget on the fly to match actual revenues that will be received.

State revenues are very problematic. The New York Times reported after the budget vote that “[t]he state is expecting at least $10 billion less in tax revenue, a steep gap that officials are already hoping to bridge with federal aid, short-term loans and cuts. Reserves may also be tapped.” It has been suggested that the gap could turn out to be up to $15 billion.

With hundreds of thousands of New Yorkers out of work, income taxes will plunge. That problem will be compounded by the delay in the filing deadline for state taxes, which moved in sync with the change in the federal income tax deadline from April 15 to July 15.

Sales tax revenues, with most businesses shuttered since late March, will drop by a large number; a number that no one can calculated at the moment. State Comptroller Tom DiNapoli’s office reports that sales tax revenues for March, when the full impact of the shutdowns had not hit, were down $134 million or nine percent compared to the projected budget.  New York City Mayor Bill deBlasio’s proposed budget for the year beginning July 1 reports a drop in March sales tax receipts of 12.2 percent compared with March 2019.

Then consider the expense side of the state budget. Here is a summary of the major categories of expenses contained in a 2019-2020 annual state budget operating fund that totaled $103.9 billion:

  • School aid     $27.7 billion
  • Medicaid     $22 billion
  • Other local government assistance     $17.6 billion
  • Higher education     $2.9 billion
  • State operations     $13.4 billion
  • State University systems     $6.3 billion
  • Debt service     $5.2 billion

The reality here is that a couple of the major categories on the expense side, for elementary education and Medicaid, will for various reasons remain close to the adopted budget. Debt service is pretty much locked in.  Total spending for those three categories represents nearly 53 percent of total operating fund spending.

Beyond those three spending buckets, the other categories of state expenses collectively total $49 billion. The during-the-year cuts in the budget, which could be in the range of $10 billion, would come mainly from borrowing, federal aid or cuts in these other categories of spending.  State aid to local governments has always been a major target for cuts in past fiscal crises, despite the fact that large portions of local budgets are for services mandated by state law.

State aid for SUNY’s 64 campuses has also been on most hit lists in prior meltdowns. Private colleges get aid from the state too, albeit in much smaller amounts, but they will likely take a hit too.  The colleges are dealing with other problems related to refunds of prepaid room and board and fees as well as the possibility of diminished enrollments.

The Governor will likely announce the first wave of state budget adjustments over the next several weeks, but while that plan is developing school districts and the state’s cities will be finalizing plans for the fiscal year that begins on July 1. Not long after that counties and towns will need to begin preparation for their fiscal years that start on January 1.

The schools and local governments depend mostly on property taxes, sales taxes and state aid for their revenues. Here is a sampling of how current budgets factored in those resources:

  • Erie County – State aid $195 million (14% of total revenues); property taxes $306 million (23%); sales tax $457 million (34%)
  • The City of Buffalo – State aid $192 million (38%); property taxes $148 million (29%); sales tax $90 million (18%)
  • The Buffalo City School System – State aid $784 million (91%); sales tax $5 million (5%). Buffalo Schools receive $70.8 million from City of Buffalo property taxes.
  • The Williamsville School District, the largest District in the County outside of Buffalo – State aid $43 million (22%); property taxes $127 million (65%); sales tax $11 million (6%)

Erie County’s 2020 budget anticipated sharing $372.3 million with its cities, towns, school districts and the Niagara Frontier Transportation Authority.

Governor Cuomo and his budget team will determine how deep to cut local aid.

For the past few years there has been a two percent property tax cap in place for local governments and school districts. School districts can breach that limit with a 60 percent approval vote of taxpayers.  Local governments can also do that with a two-thirds vote of their legislative bodies.

The sales tax revenues are a function of the various rates that are in place in the counties and the amount of taxable sales that occur. The rates will not change but taxable sales are not likely to look good for some time.

The Empire Center’s E.J. McMahon has noted we’re looking at the worst economic downturn since the 1930s. Private-sector employers are reducing staff. There are widespread reports of layoffs and furloughs across the private sector. Expectations are for greatly reduced expenditure, investment and employment well into 2021.

“All this will translate into severe deficits at both the state and local levels. The longer the pandemic lockdowns last, the deeper the hole will be, and the longer the recovery will take. Even if the ‘reopening’ begins very soon, the climb out of the depths will be measured in years, not months. Local governments likewise will grapple with shortfalls on a scale they have never experienced, not even in the Great Recession.”

The state and its counties, cities, towns, villages and school districts will be in for a very rough ride for the next year, torn between providing services and seeing revenues fall. That story will play out continuously, week-by-week, month-by-month as budgets are approved, breached, and cut.

2 thoughts on “Budget issues loom about what spending to cut as revenues shrink for the state and localities

  1. Good luck getting federal aid after Cuomo pulled Trumps pants down Friday. Not that he didn’t have it coming.
    My wife and I bought stock in a cannibis etf thinking legalization can’t be far off. Instant revenue, I don’t know what they are waiting for.


Comments are closed.