-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.
-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 Investment Percent Change
-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.
-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.
-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. 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. Source: Moody’s Economy.com; DOB staff estimates. State Fiscal Year Ending Percent Change
-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- End of Extraordinary Revenue Growth All Funds Tax Receipt Base Growth 11.4% 9.5% 12.6% 6.0% 2.5% 6.0%
-16- End of Extraordinary Revenue Growth All Funds Personal Income Tax Base Growth 15.5% 9.8% 16.0% 8.9% 3.9% 5.5%
-17- End of Extraordinary Revenue Growth All Funds Business Tax Base Growth 19.9% -4.8% 23.1% -1.4% 9.3%
-18- End of Extraordinary Revenue Growth All Funds Sales Tax Base Growth 5.3% 5.0% 4.2% 2.8%
-19- 2007-08 Declining Revenue Projections Projected 2007-08 General Fund Receipts (Billions) $41.8B $41.3B $41.1B Over $700 million in Downward Revisions $41.1B
-20- 2008-09 Declining Revenue Projections 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
-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 2007-082008-09Percent Growth State Operating Funds (At Time of Enactment) $77.0 B$80.5 B4.5 % State Operating Funds (After Labor Agreements) $77.0 B$80.9 B5.0 % All Funds$116.1 B$121.6 B4.8 %
-24- Spends Less than the Exec. Budget for First Time in a Decade $81.6 B $80.9 B 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 billion Revenue 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.
-29- Spending Growth Outpacing Revenues 10.2% 2.7% Base Tax Growth v. Base Spending Growth 8.7% 4.6% Budget Gap
-30- Significant Out-year Budget Gaps Projected 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