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2009-10 Fiscal Plan Update. August 14, 2009. DOB Projections. $38.2 B Cumulative 4 Year Budget Gap $260 M in Workforce Reduction Savings over next 2 years “To achieve the needed Financial Plan savings, more stringent workforce measures beyond those outlined above may be necessary”
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2009-10 Fiscal Plan Update August 14, 2009
DOB Projections • $38.2 B Cumulative 4 Year Budget Gap • $260 M in Workforce Reduction Savings over next 2 years “To achieve the needed Financial Plan savings, more stringent workforce measures beyond those outlined above may be necessary” • Current recession to end during second half of 2010
$38.2 B Cumulative 4 Year Gap 2009-10 2010-11 2011-12 2012-13 $2.1 B $4.6 B $13.3 B $18.2 B Increase of $13 B from the Enacted Budget forecast
Reduction in Revenue Reduction in forecast for State tax receipts: • $6.6 B: Personal income taxes ($4.6 B) and sales taxes ($2B) are showing the greatest downward revisions. • Increase in PIT collections from high income surcharge coming in more slowly than anticipated • Lower estimates for lottery receipts ($1.4 B) • Reduced investment income ($1.2 B)
Increased Spending • Increase in General Fund support for school aid ($1.4 B) due to lower estimates for lottery receipts • Substantial increases in the State’s pension contributions ($2.1 B) • Higher growth in human services spending ($870 M)
State Share Pension Contribution • Common Retirement Fund showing lower returns on investments, resulting in increased employer contributions • ERS pension contribution rates are projected to grow from 7.2% in 2009-10 to 24.1% in 2012-13 • PFRS also projected to increase 14.7% in 2009-10 to 33.1 % in 2012-13 • According to DOB, pension costs could be reduced by the enactment of legislation to: 1) allow amortization of increased costs over several years; 2) create a new Tier V
Workforce Reductions • Executive estimate of amended WRP saving $260 M over next 2 years by: • Continuation of the hiring freeze, eliminating funded vacancies and not filling attritions in State agencies • Severance program to reduce the workforce in the current year • Additional Savings from: • VRWS • Withholding of MC salary increases • Tier V
US Economic Forecast (DOB) Recovery to begin by the fourth quarter of 2009 • Housing market showing signs of stabilizing, • Job declines have begun to moderate • US economy contracted less than anticipated in the first quarter, with more improvement in 2nd quarter • US economy projected to grow 1.7% in 2010 • Unemployment rate near or above 10%, will stay there through 1st quarter of 2010
NYS Economic Forecast (DOB) • Current recession to end during second half of 2010 • NY’s recession started later, expected to last longer • Employment projected to decline 2.3% for 2009, 0.3% 2010, downward revisions from April forecast • Private sector employment projected to fall 2.7% in 2009, 0.5% in 2010: • Financial services down 5.3% in 2009, • professional scientific and technical sector 6.2% in 2009
Severe impact on wages: • Due to dependence on financial sector, wages fell 13.1% in first quarter of 2009 • 4.8% decline in State wages for 2009 • Credit market conditions and rising debt default rate will exert downward pressure on NY’s income and tax base by continuing to depress real estate activity
What to Expect • Difficult revenue and spending decisions • End of recession does not mean financial recovery for State, can take 3-4 years • Employment can lag GPD recovery, so can non-wage income • Capital gains can recover sharply and still be far below former peak, and tax payments on capital gains can lag the income • Source: presentation by Rockefeller School of Government at Governmental Research Association Annual Conference