2008-09 enacted budget and economic outlook may 15, 2008 laura l. anglin director of the budget
TRANSCRIPT
2008-09 Enacted Budget and Economic Outlook
May 15, 2008
Laura L. AnglinDirector of the Budget
-2-
Presentation Overview
Economic Climate
2008-09 Enacted Budget
Outlook for 2009-10
Recessionary Economic Climate
-4-
National Recession
Division of the Budget projects that the U.S. economy in now in a recession.
Substantial private sector job losses.
Household income and consumer spending are slowing considerably.
Corporate profits are falling, due largely to turmoil in financial market
-5-
Concerns in the Job Market
Five straight months of declining private sector employment. Since December, U.S. has lost over 300,000 jobs.
Since the release of DOB’s 21-Day forecast, U.S. private sector employment has been revised downward for both December and January.
The labor market has never weakened to this extent during the postwar period without falling into recession.
-120
-100
-80
-60
-40
-20
0
20
40
60
80
Nov-07 Jan-08 Mar-08
Job
s in
Th
ousa
nd
s
21-Day data Current data
-6-
Housing Market Continues to Suffer
The housing sector is projected to contract through the end of 2008.
Recent declines in real residential investment resemble the severe recessions of 1973-75 and the early 1980s.
Average new home prices fell 8.9 percent during the first quarter of 2008, with declines expected to continue.
The commercial real estate sector is also experiencing a significant slowdown.
Note: Shaded areas represent US recessions.Source: Moody’s Economy.com; DOB staff estimates.
Real Residential InvestmentPercent Change
-30
-20
-10
0
10
20
30
40
50
1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
-7-
Some Signs for Optimism
The Budget Division anticipates that the current recession will last eight months (Dec 2007 through July 2008) and result in an average monthly loss of 75,000 jobs.
Average postwar recession has lasted ten months with monthly loss of 154,000 jobs.
Aggressive monetary and fiscal policy (Fed 325 basis point cut, stimulus package) along with continued healthy demand for U.S. exports, will help to limit the severity of the current recession.
The U.S. economy, as measured by real GDP, is now expected to grow 1.1 percent during 2008. Never before has growth been as high as 1.1 percent during a recession.
Problems on Wall Street
-9-
Sub-prime Crisis on Wall Street
20 percent of state revenue comes from Wall Street, which has been hit hard by the sub-prime crisis.
Over $200 billion in write downs at major financial firms.
Lending activity has slowed down and banks have tightened their lending standards.
$ BillionsCitigroup $30.6Ambac Financial Group $5.4Wells Fargo $1.4J.P. Morgan Chase $3.9Bear Stearns $1.9Suntrust Bank $0.4Morgan Stanley $13.1Washington Mutual $1.6UBS $37.7Barclays $4.5HSBC $3.4Bank of America $9.6Wachovia $1.3American International Group $17.2Credit Suisse $9.3Deutsche Bank $11.6Countrywide $4.1Merrill Lynch $33.6Nomura $0.6Lehman Borthers $5.3Goldman $3.7
TOTAL $200.2
Write -downs Through April 2008
-10-
Financial and Insurance Sector Layoffs
Industry layoffs to-date exceed 63,000.
DOB has lowered its forecast for finance and insurance sector employment for New York dramatically since the release of the 2008-09 Executive Budget.
Finance and insurance sector employment always experiences significant declines during recessions.
-8
-6
-4
-2
0
2
4
2000Q1 2001Q1 2002Q1 2003Q1 2004Q1
-6
-5
-4
-3
-2
-1
0
1
2
3
4
2007Q1 2008Q1 2009Q1 2010Q1
Enacted Budget
Executive Budget
2001 Recession
2008 Recession
-11-
Wall Street Bonuses
New York State finance and insurance sector bonuses are expected to fall 11.1 percent for SFY 2008-09, following a decline of 1.3 percent for 2007-08. This compares to growth of 25.3 percent in 2006-07.
Bonuses fell 30.2 percent in 2001-02 and another 14.4 percent in 2002-03.
-40
-30
-20
-10
0
10
20
30
40
50
60
2000 2002 2004 2006 2008 2010
Enacted Budget
Executive Budget
Source: Moody’s Economy.com; DOB staff estimates.
State Fiscal Year Ending
Percent Change
What Does This Mean for New York?
-13-
New York Economic Outlook
New York State employment growth is projected to slow from 1.5 percent in 2007 to 0.1 percent for 2008. (Each percentage point increase adds about 80,000 jobs.)
State wage growth of 2.7 percent is projected for 2008, a significant slowdown from the 8.3 percent estimated for 2007. (Each percentage point increase adds about $5 billion to total wages.)
Capital gains realizations are projected to fall 15.7 percent for 2008, compared with growth of 14.7 percent for 2007. (Each percentage point decline is worth almost $1 billion in taxable income.)
-14-
Effect of Recession on New York
New York has been especially hard hit by past recessions, compared to nation as a whole.
New York recessions are usually twice as long and have deeper job losses than the country overall.
Average length of last five US recessions: 11 months.
Average length of last five NYS recessions: 25 months.
-15-
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
End of Extraordinary Revenue Growth
All Funds Tax Receipt Base GrowthAll Funds Tax Receipt Base GrowthAll Funds Tax Receipt Base GrowthAll Funds Tax Receipt Base Growth
11.4%
9.5%
12.6%
6.0%
2.5%
6.0%
-16-
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
End of Extraordinary Revenue Growth
All Funds Personal Income Tax Base GrowthAll Funds Personal Income Tax Base GrowthAll Funds Personal Income Tax Base GrowthAll Funds Personal Income Tax Base Growth
15.5%
9.8%
16.0%
8.9%
3.9%
5.5%
-17-
- 5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2005-06 2006-07 2007-08 2008-09 2009-10
End of Extraordinary Revenue Growth
All Funds Business Tax Base GrowthAll Funds Business Tax Base GrowthAll Funds Business Tax Base GrowthAll Funds Business Tax Base Growth
19.9%
-4.8%
23.1%
-1.4%
9.3%
-18-
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2005-06 2006-07 2007-08 2008-09 2009-10
End of Extraordinary Revenue Growth
All Funds Sales Tax Base GrowthAll Funds Sales Tax Base GrowthAll Funds Sales Tax Base GrowthAll Funds Sales Tax Base Growth
5.3%
5.0%
4.2%
2.8% 2.8%
-19-
40.8
41.0
41.2
41.4
41.6
41.8
42.0
( J uly2007)
(October2007)
(February2008)
(March2008)
ActualResults
2007-08 Declining Revenue Projections
Projected 2007-08 General Fund Receipts (Billions)Projected 2007-08 General Fund Receipts (Billions)Projected 2007-08 General Fund Receipts (Billions)Projected 2007-08 General Fund Receipts (Billions)
$41.8B
$41.3B$41.3B
$41.1B
Over $700 million in Downward Revisions
$41.1B
-20-
41.3
41.5
41.7
41.9
42.1
42.3
42.5
42.7
42.9
43.1
43.3
( J uly2007)
(October2007)
(February2008)
(March2008)
(EnactedBudget)
2008-09 Declining Revenue Projections
Projected 2008-09 General Fund Receipts (Billions)*Projected 2008-09 General Fund Receipts (Billions)*Projected 2008-09 General Fund Receipts (Billions)*Projected 2008-09 General Fund Receipts (Billions)*
$43.2B
$42.0B
$42.7B
$42.3B
Over $1.7 billion in downward revenue revisions
$41.5B
*Excludes Changes to Law
2008-09 Enacted Budget
-22-
Enacted Budget Overview
Balanced budget passed with minimal delay on April 9, 2008.
Spends less than Exec. Budget for first time in a decade
Closed $5.2 billion General Fund deficit without tapping rainy day reserves
Governor Paterson’s first act in office was to propose $800 million in across-the-board cuts, $710 million of which were implemented
Makes important investments in education, health care coverage and economic development
-23-
2008-09 Enacted Budget: Spending Estimates
2007-08 2008-09 Percent Growth
State Operating Funds (At Time of
Enactment)
$77.0 B $80.5 B 4.5 %
State Operating Funds (After Labor
Agreements)
$77.0 B $80.9 B 5.0 %
All Funds $116.1 B $121.6 B 4.8 %
-24-
Spends Less than the Exec. Budget for First Time in a Decade
80.00
80.25
80.50
80.75
81.00
81.25
81.50
81.75
82.00
Exec. Budget After Labor Settlements
$81.6 B
$80.9 B
2008-09 State Operating Funds Spending (Billions)2008-09 State Operating Funds Spending (Billions)2008-09 State Operating Funds Spending (Billions)2008-09 State Operating Funds Spending (Billions)
$80.5 B
-25-
2008-09 Budget Gap
General Fund Deficit $5.2 B
Legislative Initiatives $873M
2008-09 Budget Gap $6.1 B
-26-
$6.1 billion Gap Closing Plan
Savings Actions
$2.8 billionRevenue Actions
$1.3 billion
Non-recurring Actions
$1.3 billion
Labor Reserves
$620 million
-27-
Major Policy Initiatives
K-12 Education: $1.8 billion school aid increase
Economic Development: $1.6 billion statewide economic development capital plan ($700 million Upstate Revitalization Fund)
Health Care: Provides access to coverage for all New York’s 400,000 uninsured children; begins reforming reimbursement system to invest in primary and preventative care;
Higher Education: Nearly $2.5 billion capital investment in SUNY and CUNY projects; authorizes creation of Endowment, but does not specify funding source.
Outlook for 2009-10
-29-
Spending Growth Outpacing Revenues
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2009-10 SpendingGrowth
2009-10 RevenueGrowth
10.2%
2.7%
Base Tax Growth v. Base Spending GrowthBase Tax Growth v. Base Spending GrowthBase Tax Growth v. Base Spending GrowthBase Tax Growth v. Base Spending Growth
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2010- 11 SpendingGrowth
2010- 11 RevenueGrowth
8.7%
4.6%
BudgetGap
BudgetGap
-30-
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2009-10 2010-11 2011-12
Significant Out-year Budget Gaps
Projected Out-year General Fund DeficitsProjected Out-year General Fund DeficitsProjected Out-year General Fund DeficitsProjected Out-year General Fund Deficits
$7.7B
$5.0B
$8.8B
-31-
Moving Forward
State spending is still growing at an unsustainable rate, even after recent cuts
Governor Paterson has pledged that next year will be much different when he delivers his first Executive Budget proposal
Recently called on state agencies to submit plans to achieve 3.35% spending reduction Reevaluate their operations from top to bottom Limit hiring to only job openings absolutely essential to their operations Said these reductions are “only the beginning”
Convened a work group to examine root causes of spending growth