NEW YORK STATE
1996-97 and 1997-98
ECONOMIC AND REVENUE REPORT
_______________________________
March 1997
Herman D. Farrell, Jr., Chairman
Assembly Ways and Means Committee
Majority Members
Arthur O. Eve, Joseph R. Lentol, Alexander B. Grannis, Albert Vann, Paul E. Harrenberg, Edward Griffith, Ivan C. Lafayette, Robin L. Schimminger, Clarence Norman, Jr., William L. Parment, Samuel Colman, Ronald J. Canestrari, Thomas B. Dinapoli, David F. Gantt, Helene E. Weinstein, Ronald C. Tocci, Elizabeth A. Connelly, Deborah Glick, Roberto Ramirez, Gloria Davis, Catherine T. Nolan, Joseph Crowley
Prepared by the
Assembly Ways and Means Committee Staff
Janet E. Penksa
Secretary to the Committee
Roman B. Hedges
Deputy Secretary
Edward M. Cupoli
Chief Economist
Steven A. Pleydle
Director of Research Director of Tax & Fiscal Studies
Qiang Xu
Deputy Chief Economist
Laura L. Anglin
Deputy Fiscal Director
March 3, 1997
Dear Colleagues:
I am pleased to provide you with the Ways and Means Committee New York State Economic and Revenue Forecasts for Fiscal Years 1996-97 and 1997-98. This report is part of our commitment to presenting clear and accurate information to the public. It offers a complete and detailed assessment of the national and State economies, including some analysis of regional economies, as well as a thorough analysis of State receipts.
While the Committee staff reports that the State economy is continuing to grow, the pace of job creation was slower in 1995 and 1996 than it was in 1994. Although we are still struggling to increase employment, the economy has experienced healthy increases in wages and corporate profits. Wages and salaries in the State are expected to grow by 5.9 percent and personal income in the State is expected to grow by 5.7 percent in 1997. U.S. corporate profits are projected to grow 6.0 percent in 1997. These growth rates are somewhat slower than those experienced in 1996, consistent with significantly slower growth in financial sector bonus income than we are seeing this winter. However, they still represent healthy growth.
This outlook on the State economy is brighter than that submitted with the Executive budget proposal. This brighter economic outlook when coupled with more recent information on current year receipts, provides the basis for our more optimistic forecast for State tax collections. The staff forecast for General Fund and Lottery receipts for the 1996-97 fiscal year totals $35,066 million, $562 million higher than the Executive. For the 1997-98 fiscal year, receipts are projected to total $35,953 million, or $1,462 million above the Executive forecast.
The Committee staff projections are reviewed by an independent panel of professional economists drawn from major financial and manufacturing corporations, prestigious universities, and private forecasters from across the State. The Assembly Speaker, Sheldon Silver, and I would like to express our appreciation to all of the members of our Board of Economic Advisors. Their dedication and expert judgement have been invaluable in helping the Ways and Means Committee staff refine and improve this forecast. They have served to make the work of the staff the best in the State. Of course, they are not responsible for either the numbers or the views expressed in this document.
I wish to acknowledge the fine work done by the talented Ways and Means Committee staff. Their forecasts are integral to the budget process.
The Speaker and I look forward to working with each of you to achieve a budget fair for all New Yorkers.
Sincerely,
Herman D. Farrell, Jr.
Chairman
OVERVIEW
The national economy is in the midst of its seventh year of uninterrupted expansion, while the State is nearing the end of its fifth year of economic growth. The national economy's moderate pace of growth has nurtured only sluggish employment growth in New York. After peaking in 1994, the State's rate of job growth continues to lag well behind the national average. However, in contrast to lackluster growth on Main Street, Wall Street's performance has been nothing short of remarkable. Financing corporate restructuring in an environment of interest rate stability promoted by low inflation and modest growth has proven to be beneficial for financial markets and, hence, for New York, home state of the world's financial capital, New York City.
State employment and income growth continue to display two strikingly different trends. After peaking in 1994, the State's rate of job growth continues to lag well behind the nation. For 1997, national employment is predicted to grow by 1.8 percent, following 2.0 percent growth in 1996. In contrast, New York employment grew only 0.6 percent in 1996, and it is estimated to grow by 0.8 percent for 1997 less than half of the rate projected for the nation.
State personal income and its largest component, wages and salaries, both grew at a substantially faster rate than employment in 1996. At 5.7 percent and 6.9 percent, respectively, New York personal income and wages and salaries growth outperformed the nation as well last year. The State's income growth performance for 1997 is also expected to be strong. Wages and salaries are predicted to grow 5.9 percent, while total personal income is expected to grow 5.7 percent. Record-breaking profits for financial sector firms have resulted in large bonuses for Wall Street employees, making a significant contribution to State income growth. The process of corporate restructuring has entered a new phase in relation to its impact on the New York economy. The proliferation of big ticket mergers and acquisitions has proven to be a boon to those Wall Street investments banking firms which are brokering these mammoth deals. The outlook for corporate profits more generally is also favorable due to an expanding economy, technological advance, the absence of significant wage pressure, as well as the rewards of the restructuring process. Hence, in contrast to the earlier phase which cost the State jobs, this phase has produced benefits to the State economy.
This economic assessment for 1996 translates into a brighter than expected outlook for General Fund and Lottery receipts in the 1996-97 fiscal year. The Committee staff estimates 1996-97 General Fund and Lottery receipts will grow by 2.4 percent despite the implementation of the next phase of tax cuts and additional dedication of tax receipts. The bulk of this increase lies within the Personal Income Tax. Strength in the financial markets and anticipated growth in bonus income are the main factors driving this growth. The Committee staff estimate for the current year is $562 million higher than the Executive.
The Committee staff forecasts 1997-98 General Fund and Lottery receipts will increase by $887 million or 2.5 percent. The projected increase is primarily due to refund reserve transactions, which enable the 1996-97 year-end surplus to roll over into 1997-98. This surplus will have the effect of increasing State Fiscal Year 1997-98 receipts by $880 million. Excluding the refund reserve, General Fund taxes are forecast to decline by 1.3 percent because of scheduled tax cuts. The largest declines will be seen in the Personal Income Tax, Other Taxes and Miscellaneous Receipts. Tax reductions within the Personal Income are estimated to reduce receipts by $1.9 billion in 1997-98. The dedication of additional Real Estate Transfer Tax receipts to pay debt service on the Environmental Bond Act accounts for the decline in Other Taxes. The decline in Miscellaneous Receipts is attributable to a number of one-time revenue actions, totaling $679 million, which are not expected to re-occur in 1997-98. The Committee staff forecast for the coming fiscal year is $1,462 million higher than the Executive.