State Comptroller Pegs Coronavirus Impact Between $4 Billion to More Than $7 Billion
Real Estate In-Depth | March 18, 2020
ALBANY—New York State Comptroller Thomas P. DiNapoli issued a revised revenue projection for the 2020-2021 state budget that estimates tax revenue will be at least $4 billion below the projections in the Executive Budget of $87.9 billion if a mild recession results from the novel coronavirus pandemic.
He also offered one alternative scenario if a more severe recession or sharper declines in the stock market occur, whereby tax revenues could be lower by more than $7 billion.
On March 10, Governor Cuomo requested DiNapoli examine the revenue projection that the governor and State Legislature agreed to on March 1 before they adopt a new budget, which is due April 1.
In a March 17 letter to Gov. Cuomo, DiNapoli stated, “In assessing risks to the March 1 revenue consensus, we examined recent developments and relevant indicators including sharp declines and continuing volatility in the stock markets; monetary policy efforts by the Federal Reserve to bolster the economy; and widespread developments that will limit consumer spending and other economic activity.”
He noted that definitive estimates of the impact of the COVID-19 pandemic are not possible because the ultimate health and social impacts of the virus are currently unknowable.
“Significant fluctuations with an overall downward trend in economic conditions continue on a daily basis, contributing to an extraordinarily high level of uncertainty looking forward. Given this, precise projections of key indicators such as gross domestic product, employment, wages, and financial sector bonuses cannot be made with confidence,” he added.
The State Comptroller also noted that in addition to the pandemic, a number of other factors could worsen the state’s revenue outlook, including:
• Congress is considering legislation that would bolster unemployment insurance, make paid sick leave and family leave more widely available, and temporarily increase the federal share of states’ Medicaid costs under certain circumstances.
• The federal government has delayed the tax filing deadline until July 15, which could result in billions of dollars of New York tax payments being delayed as well. This raises concern regarding the state’s cash flow in the coming fiscal year.
• The state faces other revenue risks such as lower state gaming receipts from video-lottery facilities and commercial casinos. The Executive Budget Financial Plan projects receipts from VLTs and casinos to total $1.1 billion in SFY 2020-21. Other non-tax revenue sources could be at risk as well.
• The Legislature has authorized $40 million to address costs related to COVID-19, including personal services, equipment, supplies or training. Other costs not currently expected, and difficult to estimate, may arise due to a variety of factors related to the outbreak and its economic impact, the State Comptroller stated.
“The current economic challenge serves as a reminder that the state must make a firm and ongoing commitment to strengthening its rainy-day reserves. Beyond that, the planned deposit of $428 million to the Rainy-Day Reserve Fund at the end of the current fiscal year, which should go forward, would bring combined rainy-day reserves to approximately $2.5 billion,” DiNapoli said.
He also noted that the Division of the Budget has identified an additional $890 million as being informally reserved for economic uncertainties. Whether these resources should be used as part of the state’s response to any near-term economic downturn, or formally added to the statutory reserves, will depend in part on the magnitude of additional federal assistance yet to be determined, he stated.
“In addition, a substantial amount of recent years’ monetary settlement resources has been designated for certain purposes but not yet spent. To the extent that these funds are not needed for originally anticipated purposes, or that such purposes may be less than essential, certain additional resources may reasonably be available for the coming year,” DiNapoli stated in the letter to the governor.
NYC Comptroller Estimates $3.2 Billion in Lost Revenue
A day earlier, New York City Comptroller Scott M. Stringer released a new analysis of the economic impact of COVID-19 on New York City, including significant projected losses in the entertainment, hotel, restaurant, travel and tourism sectors.
The Comptroller’s analysis estimates that downturns in these key, revenue-generating sectors could conservatively cost the city $3.2 billion in lost tax revenues over the next six months. To preserve the social safety net and protect vital services for the city’s most vulnerable New Yorkers, Comptroller Stringer is calling for the city to immediately identify potential savings, suggesting a target of 4% of the city tax levy-funded agency spending with exceptions for social service agencies, DOHMH, and NYC H+H — adding up to approximately $1.4 billion.
Stringer said the savings should be included in the mayor’s Executive Budget due later next month if economic conditions continue to warrant action. Comptroller Stringer also proposed additional city, state and federal measures to assist businesses most impacted by the loss of economic activity.
“As we brace for the economic fallout of the COVID-19 pandemic, we must protect our children, our seniors, our small businesses, and the arts and cultural organizations that are core to our economy and our identity as a city,” said Comptroller Stringer. “We’re facing the possibility of a prolonged recession—we need to save now, before it’s too late, if we’re going to weather the downturn ahead.”
Stringer’s forecast of tax revenue losses is based on the following assumptions:
• Hotels are projected at 20% occupancy for the rest of this Fiscal Year (June 30th), with gradual recovery through the first quarter of FY 2021.
• Restaurant sales are projected to decline by 80%; real estate sales by 20%; and retail sales by 20%.
The Comptroller’s analysis estimates that downturns in these key, revenue-generating sectors will cost the city $3.2 billion in lost tax revenues before Q2 FY 2021.
Most private economic forecasters believe the possibility of a recession is growing daily and currently stands at a 50% likelihood, according to the City Comptroller.
The report recommends:
• City agencies should immediately identify savings equivalent to 4% of city tax levy-funded spending as of the FY 2021 Preliminary Budget. Social services agencies, including the Human Resources Administration, the Department of Homeless Services, and the Administration for Children’s Services, should be subject to a 2% savings target.
• The Department of Health and Mental Hygiene and NYC Health + Hospitals should be exempted due to their role in the COVID-19 relief efforts.
• The state should defer sales tax payments due March 20th for hotels, restaurants, and small storefront retail.
• The City Department of Small Business Services should extend the assistance program announced last week to non-profits, particularly in the arts and culture sectors.
• SBS may need to expand the scope and scale of the assistance if the evolving economic situation warrants it.
• The city should waive all small business fines and fees starting immediately.
• The federal government should include an emergency small business grant program like that created after 9/11 for Lower Manhattan in the next emergency legislative package. Other measures, such as deferring other tax payments, should be reviewed and implemented as justified by developments.