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Is New York Headed Toward Another Budget Gap?

After several years of budget surpluses, New York state tax revenue is coming in at a lower-than-expected rate.

That could affect big-ticket programs like school aid and health care as well as a multi-year tax cut planned by Gov. Andrew Cuomo and legislators.

Income tax collections are down nearly three-quarters of a billion dollars from what Cuomo’s budget division projected in April, at the start of the state’s fiscal year.

The budget division did revise its figures in August, and lowered expected tax collections by $600 million. But State Comptroller Tom DiNapoli — who issued the monthly state cash report for September — said personal income tax collections dropped by $300 million more since then, although some other tax collections actually increased, for a net loss of $91 million.

DiNapoli said he doesn’t think it’s the start of another recession or a “crisis,” but said it is a “cautionary signal.”

“We’ve had a number of pretty good years; the next year probably is going to be a leaner time,” DiNapoli said in an interview with public radio and television.

DiNapoli said the slowdown is a concern because Cuomo and lawmakers agreed to spend record amounts of money on school aid. They also committed to a phased-in middle-class income tax cut. It does not begin until 2018, but when it’s fully phased in, in nine years, it would result in over $4 billion less in state revenue each year.

In a report issued back in July, DiNapoli predicted that the state could face potential gaps as high as $5 billion before the decade ends.

“It looks like that prediction, or possible projection, seems to be coming true,” DiNapoli said.

September is a key month for divining future economic trends because Sept. 15 is one of four quarterly filing periods for estimated tax payments for wealthy investors paying capital gains taxes, as well as for business owners and the self-employed.

E.J. McMahon with the Empire Center, a fiscal watchdog think tank, agreed that there are some “yellow lights” in the tax collection numbers.

“It would point to weakness in the economy, continued volatility and weakness of stock prices,” McMahon said. “And a fairly uncertain, verging on pessimistic, outlook by business owners.”

He said when business owners file quarterly payments, they are also projecting expected future profits so they won’t underpay their taxes and end up owing more money.

He said consumption taxes, like sales taxes, also have been growing at a very slow rate, another sign the economy is not strong.

McMahon said there’s a way that Cuomo and lawmakers could still afford the middle-class tax cuts.

He said they could get rid of a rebate check to homeowners that is tied to school property tax cuts. It ended some years ago, but has recently been revived. The rebate comes in the form of a check, right around election time, and will cost around a billion dollars a year from the state’s general fund.

But McMahon said voters don’t really make the intended connection between the money they receive and their incumbent senator or assemblymember.

“I question the psychology,” McMahon said. “I think many of us see the check in our mailbox and scratch our heads and say, ‘What’s this? I thought I got my tax refund.’ ”

A spokesman for Cuomo’s budget division, Morris Peters, said budget makers have taken a number of steps to ensure that New York is prepared for any potential drop in revenue. He said the state has had a self-imposed 2 percent spending cap, so budget growth has been kept in check, and the rainy day reserves now contain $600 million.

“This record of fiscal discipline will help, no matter what the market brings,” Peters said.

He said more details on the state’s finances will be coming out in a couple of weeks in the mid-year update to the financial plan, and that the budget office is conducting its “quarterly re-estimation process.”

Karen DeWitt is Capitol Bureau chief for the New York Public News Network, composed of a dozen newsrooms across the state. She has covered state government and politics for the network since 1990.