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2008-09 Enacted Budget and
Economic Outlook
May 15, 2008
Laura L. Anglin
Director of the Budget
Presentation Overview

Economic Climate

2008-09 Enacted Budget

Outlook for 2009-10
-2-
Recessionary Economic Climate
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
-4-
Concerns in the Job Market


-5-
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.
21-Day data
80
Current data
60
40
Jobs in Thousands

20
0
-20
-40
-60
-80
-100
-120
Nov-07
Jan-08
Mar-08
Housing Market Continues to Suffer

The housing sector is
projected to contract
through the end of 2008.
Real Residential Investment
Percent Change
50



-6-
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.
40
30
20
10
0
-101967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
-20
-30
Note: Shaded areas represent US recessions.
Source: Moody’s Economy.com; DOB staff estimates.
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.
-7-
Problems on Wall Street
Sub-prime Crisis on Wall Street
Write-downs Through April 2008
$ Billions

20 percent of state revenue
comes from Wall Street, which
has been hit hard by the subprime crisis.

Over $200 billion in write
downs at major financial firms.

Lending activity has slowed
down and banks have
tightened their lending
standards.
Citigroup
Ambac Financial Group
Wells Fargo
J.P. Morgan Chase
Bear Stearns
Suntrust Bank
Morgan Stanley
Washington Mutual
UBS
Barclays
HSBC
Bank of America
Wachovia
American International Group
Credit Suisse
Deutsche Bank
Countrywide
Merrill Lynch
Nomura
Lehman Borthers
Goldman
TOTAL
-9-
$30.6
$5.4
$1.4
$3.9
$1.9
$0.4
$13.1
$1.6
$37.7
$4.5
$3.4
$9.6
$1.3
$17.2
$9.3
$11.6
$4.1
$33.6
$0.6
$5.3
$3.7
$200.2
Financial and Insurance Sector Layoffs
4

Industry layoffs to-date
exceed 63,000.
2001 Recession
2
0
2000Q1

DOB has lowered its
forecast for finance and
insurance sector
employment for New
York dramatically since
the release of the 200809 Executive Budget.
Finance and insurance
sector employment
always experiences
significant declines
during recessions.
2003Q1
2004Q1
-4
-6
-8
Enacted Budget
3
2008 Recession
Executive Budget
2
1
0
2007Q1
-1
-2
-3
-4
-5
-6
-10-
2002Q1
-2
4

2001Q1
2008Q1
2009Q1
2010Q1
Wall Street Bonuses


-11-
New York State
finance and insurance
sector bonuses are
expected to fall 11.1
percent for SFY 200809, 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.
Percent Change
60
50
Enacted Budget
40
Executive Budget
30
20
10
0
-10
2000
2002
2004
2006
2008
-20
-30
-40
State Fiscal Year Ending
Source: Moody’s Economy.com; DOB staff estimates.
2010
What Does This Mean for New York?
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.)
-13-
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.
-14-
End of Extraordinary Revenue Growth
All Funds Tax Receipt Base Growth
14.0%
12.0%
10.0%
12.6%
11.4%
9.5%
8.0%
6.0%
6.0%
6.0%
4.0%
2.5%
2.0%
0.0%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
-15-
End of Extraordinary Revenue Growth
All Funds Personal Income Tax Base Growth
16.0%
16.0%
15.5%
14.0%
12.0%
10.0%
9.8%
8.9%
8.0%
5.5%
6.0%
4.0%
3.9%
2.0%
0.0%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
-16-
End of Extraordinary Revenue Growth
All Funds Business Tax Base Growth
25.0%
23.1%
19.9%
20.0%
15.0%
9.3%
10.0%
5.0%
-4.8%
0.0%
-1.4%
-5.0%
2005-06
-17-
2006-07
2007-08
2008-09
2009-10
End of Extraordinary Revenue Growth
All Funds Sales Tax Base Growth
6.0%
5.3%
5.0%
5.0%
4.2%
4.0%
3.0%
2.8%
2.8%
2008-09
2009-10
2.0%
1.0%
0.0%
2005-06
-18-
2006-07
2007-08
2007-08 Declining Revenue Projections
Projected 2007-08 General Fund Receipts (Billions)
42.0
$41.8B
41.8
Over $700
million in
Downward
Revisions
41.6
$41.3B
41.4
$41.3B
$41.1B
41.2
$41.1B
41.0
40.8
(July
2007)
-19-
(October
2007)
(February
2008)
(March
2008)
Actual
Results
2008-09 Declining Revenue Projections
Projected 2008-09 General Fund Receipts (Billions)*
43.3
$43.2B
43.1
$42.7B
42.9
Over
$1.7 billion in
downward
revenue
revisions
42.7
$42.3B
42.5
42.3
$42.0B
42.1
41.9
$41.5B
41.7
41.5
41.3
(July
2007)
-20-
(October
2007)
(February
2008)
*Excludes Changes to Law
(March
2008)
(Enacted
Budget)
2008-09 Enacted Budget
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
-22-
2008-09 Enacted Budget: Spending Estimates
-23-
2007-08
2008-09
Percent Growth
State Operating
Funds (At Time of
Enactment)
$77.0 B
$80.5 B
4.5 %
State Operating
Funds (After Labor
Agreements)
$77.0 B
$80.9 B
5.0 %
All Funds
$116.1 B
$121.6 B
4.8 %
Spends Less than the Exec. Budget for First Time in a Decade
2008-09 State Operating Funds Spending (Billions)
82.00
81.75
81.50
$81.6 B
81.25
81.00
$80.9 B
80.75
$80.5 B
80.50
80.25
80.00
Exec. Budget
-24-
After Labor Settlements
2008-09 Budget Gap
-25-
General Fund Deficit
$5.2 B
Legislative Initiatives
$873M
2008-09 Budget Gap
$6.1 B
$6.1 billion Gap Closing Plan
Labor
Reserves
$620 million
Revenue
Actions
$1.3 billion
Non-recurring
Actions
$1.3 billion
-26-
Savings
Actions
$2.8 billion
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.
-27-
Outlook for 2009-10
Spending Growth Outpacing Revenues
Base Tax Growth v. Base Spending Growth
10.0%
9.0%
10.2%
8.0%
Budget
Gap
6.0%
7.0%
5.0%
2.7%
2.0%
-29-
Budget
Gap
6.0%
4.0%
0.0%
8.0%
8.7%
2009-10
Spending
Growth
2009-10
Revenue
Growth
4.6%
4.0%
3.0%
2010-11
Spending
Growth
2010-11
Revenue
Growth
Significant Out-year Budget Gaps
Projected Out-year General Fund Deficits
$8.8B
10.0
$7.7B
9.0
8.0
7.0
$5.0B
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2009-10
-30-
2010-11
2011-12
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”

-31-
Convened a work group to examine root causes of spending growth