The submission of a budget plan by the Governor on January 16, 2001 marked the beginning of the budget policymaking process for State Fiscal Year (SFY) 2001-02. Following the release of the Executive Budget, the fiscal committees of the Legislature (the Assembly Committee on Ways and Means and the Senate Committee on Finance) issued separate reports providing overviews and analysis of the Executive Budget.

Beginning in the fourth week of January and concluding in the second week of February, the fiscal committees of the Legislature held twelve joint hearings on all aspects of the Executive Budget proposal. State agency Commissioners and the public at large were invited to comment on the Executive Budget at these hearings. More than two dozen agency Commissioners testified at the hearings, and more than one hundred organizational representatives spoke on behalf of their constituencies. In addition, individual Members of the Legislature held town meetings, met with constituents, and reviewed correspondence regarding the Executive Budget submission.

At the end of the month of February, the Majority and Minority staffs of the Assembly Ways and Means Committee and the Senate Finance Committee produced economic and receipts forecasts for consideration at a Consensus Economic and Revenue Conference. The Consensus Conference conveners are the Chairman of the Senate Finance Committee, the Chairman of the Assembly Ways and Means Committee, the ranking Minority Member of the Senate Finance Committee, the ranking Minority Member of the Assembly Ways and Means Committee, and the Director of the Division of the Budget. The Consensus Conference, which convened on the first of March, heard presentations from a distinguished panel of economists regarding the outlook for the upcoming fiscal year.

The Report that follows initially presents a summary of the Assembly Committee on Ways and Means staff economic outlook and revenue overview. Following the receipts projections, there is an agency by agency description of the New York State Assembly Majority's proposed SFY 2001-02 Budget. This Report presents the Majority Budget in plain language.

In commenting upon the multiple appropriation bills in the Executive Budget submission, it is initially noted that many provisions thereof would amend or circumvent existing State law. There is a substantial body of case law concerning the unconstitutionality of the inclusion of such provisions in multiple appropriation bills. Any actions proposed with regard to any provisions of the Executive submission without specific and repeated comment as to their constitutionality do not indicate acquiescence by the Assembly that such provisions or the submission itself is constitutional.

Another "Soft Landing" for the U.S. Economy

• The current economic expansion in the United States is the longest on record.
• Economists are now watching carefully to see if the Federal Reserve can maintain a second "soft landing" for the economy-a moderate economic slowdown with no recession-following their most aggressive easing of interest rates since 1982.

The "New Economy"

• It remains unclear whether the "new economy" of low inflation and low unemployment is a temporary phenomenon. However, several key ongoing factors-the shift of employment away from manufacturing and toward services; careful monitoring by the Federal Reserve; intense competition engendered by global economic integration; and a resurgence in productivity growth-make it likely that, when compared to the period prior to 1982 (the beginning of our previous expansion), national business cycle expansions will be longer and recessions will be shorter.

Forecast

• The NYS Assembly Ways and Means Committee staff predicts that the national economy (real Gross Domestic Product, or GDP) will grow 2.4 percent during 2001. Although this forecast is less than the 5.0 percent growth for 2000, the strongest annual figure since 1984, it nevertheless represents sound economic expansion that is sustainable without an increase in the current rate of inflation (see Figure 1).

  
  Figure 1

• The NYS Assembly Ways and Means Committee staff expects productivity growth for the nonfarm business sector to be 2.9 percent this year, which is consistent with the reduction in the rate of GDP growth expected.

• The new economy appears to be having a favorable impact on New York State.
• Although consumer confidence has dropped to the lowest level since 1996-with unemployment remaining low and the ratio of household net worth to disposable income still high, despite a much tamer stock market-there is little reason to believe that consumption growth will fall enough to threaten the viability of the expansion.

Employment

• A shift toward a service economy has occurred in New York, and the State's business services industry has shown the most consistent strength of any industry since the end of the last recession in the early 1990's.
• Overall, New York State employment grew 2.7 percent in 1999-the highest rate of growth since the mid-1980's-increased 2.0 percent in 2000, and is forecast to grow by 1.4 percent in 2001. The Federal Reserve's success thus far in maintaining relative price stability has been a boon to the financial markets, which play an important role in employment growth in New York City.
• The NYS Assembly Ways and Means Committee staff projects that New York State employment will grow 1.4 percent in 2001, generating about 123,500 new jobs. For the year 2001, the Committee staff forecasts that employment growth rates for New York State will exceed those of the United States.
• New York State employment grew faster than the United States in 1999. However, since the current U.S. expansion started in 1991, employment in the New York has grown at about one-half the rate of the nation (see Figure 2).

Income

• Economic growth in New York State continues to be strongly tied to the national economy as well as Wall Street.
• New York's unique economy can support income growth, even without strong growth in employment. In fact, since 1979, annual real personal income has grown at roughly double the rate of job growth.
• The NYS Assembly Ways and Means Committee staff projects that wages and salaries will grow by 5.7 percent in 2001, following growth of 9.2 percent in 2000. The high rate of growth in 2000 was driven largely by Wall Street, and especially by bonus earnings in the financial sector and stock options exercised.

Figure 2

Regional Outlook

• Benefits of a more integrated global economy have proven to be quite variable across the regions of New York State. Upstate manufacturing employment began to fall in July 1998, following a short period of growth immediately prior. The Western New York region saw virtually no growth in 1998, and has seen very little improvement since then.
• In contrast to upstate's slow employment growth, many downstate areas have seen significant growth due to more integrated global markets. International demand for financial market services, such as those related to merger and acquisition activity, has increased. Global integration has produced a strong wave of merger and acquisition activity.

Over the two-year forecast period, the Committee Staff estimate, as presented in the forecast report of February 2001, is $2.152 billion higher than the Executive.

State Fiscal Year 2000-2001

• General Fund and Lottery receipts are projected to total $42.117 billion, representing growth of 8.7 percent, or $3.378 billion, over State Fiscal Year 1999-2000. This high growth is partially attributable to the transfer of surplus funds from State Fiscal Year 1999-2000 into State Fiscal Year 2000-2001.
• The duration of the national expansion and the strength in the financial related services have helped to invigorate the New York State economy. The securities industry saw another year of strong profits during 2000. This resulted in increased levels of Personal Income Tax collections in excess of 12 percent. Withholding collections are expected to increase by 11.7 percent over State Fiscal Year 1999-2000. Similarly, strong from in estimated payments of 17.5 percent is anticipated.
• Previously enacted tax reductions will reduce revenues by approximately $2.2 billion.
• The Committee Staff estimate is $603 million higher than the Executive.

State Fiscal Year 2001-2002

• General Fund and Lottery receipts are projected to total $45.732 billion, representing growth of 8.6 percent, or $3.615 billion, over State Fiscal Year 2000-2001.
• The forecast reflects continued, but slower, growth in both the national and state economies.
• Previously enacted tax reductions will reduce revenues by approximately $1.8 billion.
• The Committee Staff estimate is $1.549 billion higher than the Executive.