New York’s latest tax collection data indicate New York’s just-passed state budget was based on rosy assumptions about income tax receipts that are not materializing.
The monthly cash report released yesterday by the Office of the State Comptroller indicates April tax receipts came in just shy of $11 billion — more than $4 billion below the estimates published by the state Budget Division in February.
The drop was concentrated in personal income tax (PIT) collections. Budget officials expected $12.3 billion in PIT collections, but only recorded $7.5 billion.
April tends to be the biggest month for PIT receipts, reflecting the final payments of people and businesses making payments associated with their prior year’s tax liability. These figures can fluctuate rapidly, especially in New York, where much of the PIT revenue is tied to global financial markets. Consumption and use taxes, by comparison, came in almost exactly on the money at $1.7 billion.
After the historic spike in tax receipts in April 2022 (below) amid record high capital gains, budget officials had expected PIT receipts to fall by 17 percent from April 2022 to April 2023, but the actual drop appears to have been about 49 percent.
Business taxes came in slightly higher at $1.5 billion, compared to the forecast $1.2 billion. It’s possible this bump came from firms that previously paid state income tax instead of paying the state’s new passthrough entity tax, or PTET, to bypass the federal cap on state tax deductibility.
All this comes after the state’s March numbers came in almost one-third — or $2 billion — over forecast, thanks primarily to PTET receipts dropping only modestly.
This uncertainty around the state’s revenue picture should have given officials pause when they adopted the state budget earlier this month. But Governor Hochul and the Legislature showed anything but caution: authorized FY24 spending exceeded then-forecast receipts by about $1 billion. That made the state draw from its fund balance to close the gap, which allows spending to rise faster than receipts can cover it, and cuts the amount of funds available to make up for any receipts that might not show up.
Meanwhile, much of the budget’s roughly 5 percent spending hike was for Medicaid, a program where governors and lawmakers have struggled to bring runaway spending under control once the governor takes his or her foot off the brakes. The state’s share of the joint state-federal program is poised to rise 13 percent, and the actual costs could go higher.
Hochul’s budget team in February was already indicating the state faced budget gaps of $5.1 billion in fiscal 2025 (which begins April 2024) and $8.6 billion in fiscal 2026 — gaps that have likely grown significantly since she agreed to hike spending $2 billion higher this year.
The enacted budget financial plan that will be released in coming weeks will show how those gaps have grown — and how long before the state runs out of cash with which to close them.
Buckle up.
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