City, State Gap Emerges on Pessimism
Mayor Bloomberg and Governor Paterson have been trying to outdo each other in warning of fiscal calamity. But when it comes to budget forecasting, Albany appears to be painting a rosier picture of the economy.
Major economic indicators in the most recent budget reports released by the Paterson and Bloomberg administrations indicate what fiscal analysts are describing as a "pessimism gap" between Albany and City Hall.
While Mr. Paterson's budget office is predicting that the wage rate in New York State will grow by 2.4% in 2008, the mayor's budget office is forecasting a drop in the city wage rate of 1.3% during the same period.
The state is projecting a 3.4% growth in personal income statewide. City Hall expects income to flatline in the city. The state sees nonagricultural employment growth of 0.2%, while the city is predicting a decline of 0.3%.
The gap trend extends to the next year. In 2009, the state is forecasting personal income growth of 2.6%, compared to a drop of 0.3% in the city. Albany sees a growth in employment of 0.1%, while City Hall projects a decline of 1.2%, according to figures provided by the Manhattan Institute's Empire Center for New York State Policy.
"There is a fairly significant pessimism gap between the city and state," a fiscal analyst with the Manhattan Institute think tank, E.J. McMahon, said. "It is difficult to reconcile the two forecasts. If the Office of Management and Budget is correct, then the state forecast is too optimistic."
If the city's estimate is accurate, then personal income growth outside the city would have to rise by 6.2% this year to match the state projections, according to the Empire Center.
State budget officials attributed the difference to the deeper impact of Wall Street losses on the city than on the state, as Wall Street makes up a bigger share of the city's wages and income. State officials noted that in past years some of their projections have been lower than the city's.
City officials, however, said their economic forecasts erred on the side of caution. A key difference, they said, was the city's assumption of a decline this year in Wall Street bonuses per employee, and also its anticipation of a greater number of Wall Street layoffs. The mayor's office is anticipating that Wall Street will shed 25,000 jobs over the next two years, causing wages to fall more steeply.
The city and state budget teams also incorporated different national data. While the Paterson administration is forecasting a growth of 2.1% in the gross domestic product and a 4.8% increase in personal income in 2009, the Bloomberg administration put those figures at 1.7% and 3.8%, respectively, according to the Empire Center.
In the realm of rhetoric, Messrs. Bloomberg and Paterson have each sounded the alarm on the economy with equal intensity and have called for drastic belt-tightening.
"The numbers are scary," Mr. Bloomberg said, in announcing his budget proposal to the City Council last week. "Make no mistake about it: Everybody in this city should pray Wall Street does well."
The mayor's budget called for a spending freeze for the first time since 2002.
Last month, Mr. Paterson, a former lieutenant governor who took office in March, approved a budget that increased state-financed spending by 5.6%, producing a budget deficit totaling $21 billion over the next three fiscal years.
Expecting resistance from lawmakers, the governor has been trying to lay the groundwork for more severe budget cuts next year, arguing that dire economic conditions will leave the state with no choice but to roll back spending.
"We have a unique problem in our states around the country that I think is analogous to what happened in 2001," he said at a press conference last month.
In a recent radio interview, Mr. Paterson said: "The indications are there that we are going to have a very difficult economic year. We have to plan for the worst and stop kidding ourselves."
The governor's own budget forecasts threaten to undermine his case. Already, Senate Republicans have disputed the Paterson administration's bleak assessment and say the economic is showing signs of recovery.
The administration says the state fell into a recession in December that will continue into the summer. While the state experienced a drop in revenue in the 2001-02 and 2002-03 fiscal years, the state is projecting revenue growth of 2.7% this year and 4.6% the next.
