EdVANTAGE Blog

In an announcement foreshadowed by earlier reports that state revenues were falling short of projections, today Governor Paterson reported that his Budget Division projects the state faces a $2.1 billion deficit for the fiscal year which began last April.

In September, the Governor will propose will propose an economic and fiscal recovery plan to “eliminate the current-year budget deficit and improve the state’s long-term fiscal health.”

The announcement accompanied the release by the Division of the Budget (DOB) of its first quarter update on the 2009-10 state financial plan.  These quarterly reports are required by law.

The report also increased estimates of projected deficits for the fiscal years to follow.  For example, DOB now projects that the state faces a structural deficit of $4.6 billion for 2010-11, up from $2.2 billion in April.

To give a sense of magnitude, the current year deficit is equal to 3.9 percent of projected expenditures and the 2010-11 deficit would equal 7.7 percent of projected expenditures.

Almost all of this year’s now projected $2.1 billion deficit is due to downward revisions in receipts; only $87 million is attributed to upward disbursement estimates.

The New York Times reported that State Budget Director Robert Megna said some of the revenue declines are unprecedented in recent state history.  Speaking of sales tax receipts, he said, “The results in the first quarter were out of any historical context. After 9/11, with Manhattan closed for a month, our results were not as bad.”

In future years, however, newly forecast spending growth becomes a more significant factor in state deficits.  Previously unplanned pension contribution costs account for a high share of the increased expenditures. As previously reported, plunging investment earnings will drive up employer contributions to the Employees Retirement System.  DOB now plans for a 24.1 percent ERS contribution rate in 2012-13 resulting in $1.27 billion in previously planned expenditures.

Releases from the Governor and his Budget Division note that the projected out-year deficits are far below what were forecast before the state enacted this year’s budget.  They also observe that New York is not alone in identifying a current year deficit.  Over the last two months, 14 state have done so.  New York adopted its current budget before most other states — 46 states started their current fiscal years on July 1.