Assembly Speaker Sheldon Silver and Ways and Means Committee Chair Herman D. Farrell, Jr., today issued a midyear update on revenues and the economic outlook for New York State.

With the United States in recession and a financial crisis of historic proportions affecting the global economy, the report states that a high level of uncertainty is threatening the health of the economy and restraining growth across the country - and especially in New York State. Any federal stimulus package will have a direct effect on the forecast.

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

• The New York State economic outlook is bleak. Both employment and wages are expected to fall in 2009, and the outlook for variable compensation is particularly dire due to the current financial situation on Wall Street. Wages in New York State are expected to fall 3.2 percent in 2009, after growing 1.4 percent in 2008. The decline is largely attributed to a drop in variable wages, as base wages will still manage to grow, though at a much slower rate than in 2007.

• Tax revenues for 2008-09 will total $61.0 billion. This estimate is $252 million below the Executive's midyear estimate. The Executive's midyear estimate of $61.2 billion for the current fiscal year is $1.8 billion below the First Quarter Financial Plan Update.

• State tax revenues are forecast to decline by 3.3 percent in 2009-10, reflecting continued weakness in the financial industry and a contraction in the national and State economies.

• A slowdown in consumer spending is expected to limit 2009-10 growth in sales tax revenue to 1.9 percent. Business taxes are expected to decrease by 1.1 percent from 2008-09. Large write-offs in the financial and banking sectors from losses suffered in the subprime mortgage market are expected to continue to have a negative impact on corporate franchise and bank taxes.

• For 2009-10, we are forecasting state tax revenues of $59.0 billion, which is $1.1 billion below the Executive forecast. A large portion of the difference can be explained by the personal income tax forecast, which is $715 million below the Executive forecast.

• As adverse conditions on Wall Street continue to limit business activities, financial activities industry variable wages are forecast to fall 41.3 percent in 2009, compared to a drop of 12.6 percent in 2008. A decline of this magnitude is unprecedented, surpassing even the 24.1 percent falloff in the industry variable wages in 2002 after the terrorist attacks of September 11, 2001.

• Financial markets and operations play a central role in the economy of New York State. The financial activities industry is a major source of revenue, generated from corporate and personal income taxes, for the State. This industry accounted for 24 percent of total New York State wages for 2007, even though employment in the industry was only 8.6 percent of total State employment.

• The weakness in tax receipts is largely due to the fallout from the financial crisis, which will drive down receipts in both the corporate and personal income tax. In addition, the dramatic downturn in the real estate market, which is at the root of the crisis on Wall Street, will also have a negative impact on real estate taxes and through the State's consumption taxes, as consumers adjust their spending to account for dramatic declines in their household net worth.

Chairman Farrell and the Assembly Ways and Means Committee will hold the second in a series of hearings on the impact of the economic crisis on the state budget. The committee will also review the Governor's budget modifications, once they are released. The hearing will be held:

Thursday, November 13, 2008
10:00 am
Hearing Room C
Legislative Office Building, Albany

Individuals wishing to submit written or oral testimony should contact Clinton Freeman, Jr., at (518)455-3851.

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Please click here to view the New York State Assembly Midyear Update.