As federal bailout fizzles, state warns of ominous budgetary ripple effect

By Tom Precious

ALBANY — Just hours after defeat in Washington of the bailout package for the financial system, State Comptroller Thomas P. DiNapoli warned Monday that the state’s finances are starting to stare at the same ominous challenges that New York encountered after the terrorist attacks of 2001.

While he did not provide an actual number, the comptroller’s forecast means that the projected budget deficit for the fiscal year beginning next April 1 could top $9 billion.

In his most ominous fiscal message yet, DiNapoli said the Wall Street crisis could cost the state up to $3.5 billion in lost revenues over the next 17 months and the evaporation of up to 40,000 jobs in the securities industry alone.

The downturn is on track to reduce revenue — both personal and business taxes — to Albany by about $1.1 billion for the rest of this fiscal year and $2.4 billion next year, DiNapoli aides said.

DiNapoli acknowledged that the forecast was made more difficult by the fluidity of the nation’s financial troubles. Indeed, the documents his office released Monday used the word “could” — as in “could lose up to $3.5 billion” — 12 times.

Nonetheless, the forecast is a further sign of the state’s coming budget problems that will trickle down to hospitals, schools, parks, police, roadways and everything else that relies on state and local government funding.

The comptroller’s outlook comes in advance of a meeting Friday in Manhattan with Gov. David A. Paterson and legislative leaders to try to deal with the worsening budgetary picture.

In August, the state trimmed $425 million. Those cuts were relatively painless to most groups that rely on state funding. The next round, with less time in the fiscal year to absorb the cuts, will likely be much more painful.

Paterson praised DiNapoli’s assessment and said he is reviewing the situation, especially since New York relies on Wall Street for 20 percent of its government revenues.

Senate Majority Leader Dean G. Skelos, R-Rockville Centre, said he, too, is monitoring the problem and pledged to help work on a solution. Assembly Speaker Sheldon Silver, D-Manhattan, called for hearings.

This year’s Wall Street bonuses are expected to total $40 billion, according to state projections from last spring. Every 10 percent drop below that level translates into $350 million in lost tax revenue for the state. Monday, DiNapoli warned that the bonus money could match the 50 percent drop seen after 9/11. If that happens, he said, the $33.2 billion bonus level from 2007 could plummet to about $16 billion.

Job losses of 40,000 in the securities industry would have a ripple effect. DiNapoli said that as many as three additional jobs — from restaurant workers to lawyers — are created by every job in the securities industry.

The warning signals are everywhere these days in Albany. On Sept. 15, estimated quarterly tax payments — mostly by self-employed people who do not have taxes directly taken out of their paychecks — were due to the state. DiNapoli aides said Monday that the revenues from those payments are down by $120 million from the same time a year ago. The 2008 state budget is about $120 billion.

A fiscal report by DiNapoli’s office said the impact of the financial crisis on state and local economies in New York “will be substantial.”

There were some positives: Income tax revenues were up for the first five months of the year, and the number of nonfarm jobs — 8.8 million — is up from last year. But any bright spots won’t last, DiNapoli said, noting that the August unemployment rate of 5.6 percent was a full point higher than the figure a year ago.