New York May Face $7 Billion Shortfall Due to Slowdown

(Bloomberg) -- New York is facing a revenue shortfall of as much as $7 billion as the fallout from the coronavirus leads to a dramatic deterioration in the state’s economic outlook, state Comptroller Thomas DiNapoli said.

In the most optimistic scenario, tax revenue for the fiscal year beginning April 1 will be at least $4 billion below the projections in Governor Andrew Cuomo’s executive budget. Last week, Cuomo asked DiNapoli to reanalyze the forecasts in light of the havoc brought on by the pandemic. On Tuesday, S&P Global Ratings said it expects the economy to contract by 6% in the second quarter.

“Economic forecasters are currently unable to rule out a more severe recession or sharper stock market declines,” DiNapoli wrote in a letter to Cuomo. “If either occurs, the revenue outlook could be significantly worse.”

Even before the virus dimmed the lights on Broadway, closed the Metropolitan Museum of Art and shuttered New York City’s bars and restaurants, Cuomo and the legislature had to close a $6 billion deficit, caused mostly by rising Medicaid costs. New York’s tax collections are tied closely to Wall Street, where fears of a virus-induced recession have sent stock markets down by more than 20% this year.

On Monday, New York City Comptroller Scott Stringer said New York City could lose $3.2 billion in tax revenue over the next six months as the coronavirus hammers the tourism, restaurant and entertainment industries.

DiNapoli acknowledged a definitive estimate of the coronavirus’s impact on the economy and state revenue was impossible. The Trump administration is discussing a plan that could amount to as much as $1.2 trillion in spending -- including direct payments of $1,000 or more to Americans within two weeks -- to blunt some of the economic impact of the widening coronavirus outbreak.

Given the growing uncertainty, the Citizens Budget Commission, a business-backed budget watchdog, called on the state to adopt a crisis-response “bare-bones” budget that can be modified in he coming months. The state should stop increasing education aid for wealthy school districts, saving $700 million, and redesign its Medicaid program, the most generous in the U.S. The state shouldn’t raise taxes, the CBC said.

“Whatever they do on spending control, it’s likely they will need to do more,” said Andrew Rein, president of the CBC. “They should make sure they’re only funding essential spending.”

New York state could face a three-year revenue shortfall of $34 billion and New York City may face a gap of $15-$20 billion if they experience a recession that looks like an average of the last three economic downturns, according to an CBC analysis. The state has about $6 billion in reserve, said Rein.

“That’s a chunk of money but when you think about a 34 billion dollar revenue shortfall over the years, it starts to go pretty quickly.”

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