Assembly Issues Midyear Report on Economic
Forecast, Revenues and Expenditures

Forecast for 2008: Minimal Growth in Employment and Wages,
Slower Growth in Tax Revenues

Assembly Speaker Sheldon Silver and Ways and Means Committee Chair Herman D. Farrell, Jr., today issued a midyear update on revenues, expenditures and the economic outlook for New York State. The report is required as part of the new "quick start" process for creating and reviewing the state budget.

The Assembly report emphasizes the high level of uncertainty regarding the national and state economies for 2008 as a result of the slowdown in the housing market and its effect on Wall Street and the securities industry. The report foresees minimal growth in employment and wages in the New York State, slower growth in tax revenues and a range of potential factors - from higher energy and fuel costs to increases in school enrollment in some communities - that may impact state expenditures.

"This report is an early step in the new and more transparent budget process, and provides the Governor and the Legislature with vital information on economic outlook and revenues that we will need to develop a reasonable spending plan," Silver said. "We face difficult challenges ahead, but we must meet the education, health care and job growth and economic development needs of New Yorkers."

"The Assembly has long been committed to helping the public understand the role that economic factors play in the state budget, and this report builds on those efforts," Farrell said. "We look forward to working with the Governor and the Senate, with the assistance of the Comptroller, on a joint report that will be issued later this month."

The midyear update, prepared by staff members of the Assembly Ways and Means Committee, includes the following:

• A less positive outlook for Wall Street and the financial services sector will have a significant effect on the state economy over the next few years. Securities industry profits are expected to remain somewhat strong in 2007, but fall in 2008 and 2009.

• Employment growth in New York State is expected to be 0.5 percent in 2008, down from 1.0 percent in 2007. Employment in 2008 is expected to decline in the financial services and manufacturing sectors, and growth is expected to slow in other sectors.

• Wage growth in 2008 is forecast to be 3.7 percent in 2008, down from an estimated 7.4 percent in 2007. Variable wage growth, which is driven by bonuses paid to employees in the financial sector, is forecast to be 2.8 percent in 2008, down from an estimated 26.8 percent in 2007 and 31.9 percent in 2006.

• Tax revenues for FY2007-08 are expected to total $61.2 billion, which is $44 million below the midyear estimate provided by the Executive. The Assembly figure represents growth of 4.1 percent from the previous year, a significant drop from the past three fiscal years, when annual tax revenue growth averaged 11.6 percent.

• Tax revenues for FY2008-09 are forecasted to be $64.1 billion, $373 million less than the Executive forecast. The gap reflects the Assembly forecast of modest growth of 5.6 percent in the personal income tax, as well as differing assumptions regarding the impact of the subprime mortgage lending crisis on financial sector profitability.

• Based on current revenue projections and Executive estimates of changes in the spending plan, the FY2007-08 budget is expected to end in balance.

• Medicaid spending for FY2007-08 is forecast to be $12.278 billion, $64 million less than the Executive. For 2008-09, Medicaid spending is forecast to be $13.918 billion, $80 million less than the Executive.

• Public assistance spending for 2007-08 is forecast at $2.006 billion, $28 lower than the Executive. Public assistance spending for 2008-09 is forecast at $1.925 billion, $97 million lower than the Executive.

• Both the Assembly and the Executive forecast Foundation Aid for elementary and secondary education to grow by $1.25 billion. The Assembly believes that support for Universal Pre-Kindergarten should grow by $105 million in 2008-09.

• Based on data from previous years, the Assembly estimates that Building Aid, Transportation Aid, Private Excess Cost Aid and BOCES will grow by a total of $299 million; the Executive projects these categories will grow by $190 million.

Under the "quick start" budget process, forecasts are issued by the Executive, Assembly and the Senate in early November. A joint report is to be issued by mid-November.

The Assembly publishes a New York State Economic Report and New York State Revenue Report in late February of every year. The reports, available on line by clicking here, are prepared by staff with the assistance of the Assembly's Board of Economic Advisors.

The report issued today is based on the best and most complete information available as of early November, 2007. The forecasts in this report are likely to be affected by changing conditions in the economy and in the securities industry, and new information will be incorporated into the February, 2008 reports.