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Decline In GDP Indicates Reductions Needed

Passing a budget with no spending cuts at the beginning of the COVID-19 outbreak has compounded New York’s financial issues, with hope of a federal bailout before the election looking increasingly unlikely.

Federal data show New York’s GDP declined by 36.3% in the second quarter of 2020 – a loss of roughly $47.6 billion – as commerce contracted due to government-mandated closures. Even with reopening underway, the gradual process is netting less revenue and the third quarter outlook looks relatively flat, like a Nike swoosh, E.J. McMahon, senior fellow at the Empire Center for Public Policy, told the Center Square.

“There has been significant reduction in recurring revenues which won’t recover for at least four years,” McMahon said. “The most important directive state officials should look at is the Hippocratic Oath – first do no harm – or do no more harm.”

McMahon noted a number of places to realize savings: Start with postponing the state’s version of the Green New Deal and the upstate minimum wage increase, and take action to relieve localities of state mandates that force up their spending.

“They need to do everything possible to reduce the cost of government at state and local levels, especially school districts, so they can adapt to the severe downturn the state is experiencing and avoid raising taxes,” McMahon said.

With no pressure to cut expenditures, and no visible transparency, the budget bills approved in early April were higher compared to last year.

“No one apparently asked them to reduce their spending,” McMahon said. “No one had the will to make tough decisions on spending, and they had no willingness to do it.”

In the months since, the COVID-19 pandemic has wrought unprecedented economic havoc across the state.

The governor has approved temporary pay freezes for state workers, with the expectation a federal bailout is on the horizon, McMahon said.

If one occurs, it’s not projected to cover the state’s deficit, which is estimated at $8 to $14 billion, McMahon wrote.

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