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State's pension fund up, but comptroller says warning signs on horizon for N.Y. finances

Aug 9, 2017

Credit Sam Kmack, New York Now

There’s some good news and some bad news from the state comptroller’s office. The state’s nearly $200 billion pension fund is doing well, thanks in part to the booming stock market, but there are some worrisome signs for the future of New York’s finances.

Comptroller Tom DiNapoli said the pension fund is up this quarter by 2.9 percent, and has increased 11.5 percent from last year. DiNapoli said he likes to think that he and his staff have invested wisely, but he said a major factor is the booming stock market.

“The stock market rally continues,” DiNapoli said in an interview with public radio and TV. “It’s been going on longer than most people would have ever projected, but we’re benefiting from that right now.”

But there’s a drop in the state’s finances. The comptroller’s monthly report finds collections of personal income taxes are down about $1.2 billion from the same time period last year.

DiNapoli said Gov. Andrew Cuomo’s Division of the Budget has already revised down collection estimates and made some spending cuts back in May, so the actual gap is closer to $350 million.

He thinks wealthy investors may be holding back on cashing in their capital gains, hoping for tax reforms from President Donald Trump and the Republican-led Congress that will result in lower tax rates.

“For many higher-income New Yorkers, everyone is still waiting to see what’s going to happen with the federal tax proposals,” DiNapoli said. “Tax reform hasn’t happened yet.”

Cuomo’s budget office, in its most recent quarterly financial report released Wednesday, has similar findings. It said tax collections overall were down by nearly $700 million, but that was partially offset by a $350 million bank settlement. The report said budget analysts are watching it all closely.

A big wild card for the state budget is the potential federal changes. The possible repeal and replacement of the Affordable Care Act could reduce the state’s funding for health care by several billion dollars, and the tax reform proposals could eliminate state and local tax deductions.

Because New York is a high-tax state, those changes could disproportionately affect state residents. DiNapoli said the worry can keep him up at night.

“Everything is really like an outline, and there’s not a whole lot of specifics,” he said. “When they say ‘Trust us, it’s not going to hurt the middle class,’ well, the opposite happens.”

DiNapoli said many of the proposals benefit the wealthy at the expense of middle- and working-class Americans.

Cuomo’s budget office agrees that there is uncertainty over possible federal changes. The governor and state Legislature laid out a plan as part of the budget package in April to cope with any potential shortfalls resulting from a dramatic decrease in federal funds. Under it, the governor would come up with a plan to balance the budget. The Legislature has 90 days to challenge or change it, or the governor’s plan automatically becomes law.

For now, though, budget division spokesman Morris Peters said the state budget remains in balance.