I. Economic Overview

4.0

2.7

3.8

4.5 4.5 4.8

4.1

0.9

1.8

2.8

3.8 3.4

2.7

1.8

-0.3

-2.8

2.5 1.8

2.8

1.9

2.7 2.9 2.9 2.8 2.9

-4

-3

-2

-1

0

1

2

3

4

5

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Perc

ent c

hang

e

GDP CPI

Outlook for Real U.S. GDP Growth and Inflation

Note: Displayed values pertain to GDP growth. Source: Moody’s Analytics; DOB staff estimates.

Forecast

2013 2014 2015Real Gross Domestic Product (GDP)(2009 chained percent change)DOB 1.9 2.7 2.9Blue Chip Consensus NA 2.8 3.0Global Insight 1.9 2.7 3.2Macroeconomic Advisers 1.9 3.0 3.3

Consumer Price Index (CPI)(percent change)DOB 1.5 1.6 2.0Blue Chip Consensus NA 1.6 2.0Global Insight 1.5 1.4 1.8Macroeconomic Advisers 1.5 1.5 1.6

Unemployment Rate(percent)DOB 7.4 6.8 6.3Blue Chip Consensus NA 6.8 6.3Global Insight 7.4 6.5 5.9Macroeconomic Advisers 7.4 6.8 6.4

U.S. ECONOMIC FORECAST COMPARISON

Source: New York State Division of the Budget, January 2014; Blue Chip Economic Indicators , January 2014; Global Insight, US Forecast Summary , January 2014; and Macroeconomic Advisers, Economic Outlook, January 2014.

U.S. Economic Forecast Comparison

708090

100110120130140

1970 1976 1982 1988 1994 2000 2006 2012

Mill

ions

23456789

101112

1970 1976 1982 1988 1994 2000 2006 2012

$ T

, SA

AR

35455565758595

105

1970 1976 1982 1988 1994 2000 2006 2012

Inde

x

350450550650750850950

1,0501,150

1970 1976 1982 1988 1994 2000 2006 2012 $

B, S

AAR

Real Personal Income Minus Transfers Total Employment

Industrial Production Real Manufacturing and Trade Sales

Note: Shaded areas represent U.S. recessions. Source: Moody’s Analytics.

Income and production have finally surpassed their pre-recession peaks. Manufacturing and trade sales are on their way, leaving employment.

40

50

60

70

80

90

100

110

120

40

50

60

70

80

90

100

110

120

1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

US N

ew Y

ork

NYS Recessions US Recessions

NY US (right scale)

New York State Index of Coincident Economic Indicators

Note: NYS recession dates are DOB staff estimates; NYS forecast (in red) is derived from the New York State Leading Index. Source: Moody’s Analytics; DOB staff estimates.

F

70

80

90

100

110

120

0

5

10

15

20

25

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Net C

reation Index (%)

Rat

es o

f Job

Cre

atio

n an

d D

estr

uctio

n (%

) Net creation index (right scale)Job creation indexJob destruction index

Source: NYS Department of Labor; DOB staff estimates.

NYS Private Sector Employment Dynamics

-2-10123456789

2010 2011 2012 2013 2014 2015

Year

-ago

Per

cent

Cha

nge

Executive Budget Underlying Growth

Forecast

• Federal marginal tax rates were raised for the highest income earners in 2013, resulting in accelerated bonus payouts into late 2012, injecting additional volatility into State wages.

• For state fiscal year 2012-13, the contribution to wage growth of both the information sector and the professional, scientific and technical services sector increased significantly.

NYS Quarterly Wage Forecast Comparison

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Outlook for NYS Finance and Insurance Sector Bonuses

Source: NYS Department of Labor; DOB staff estimates.

$ B

illio

ns

Forecast

• Looking at wage and bonus growth on a fiscal year basis helps to smooth the volatility. • Finance and insurance bonus growth of about 8 percent is estimated for 2013-14, with projected annual average

growth of about 7 percent going forward.

Capital Gains Realizations ($billions)

0

20

40

60

80

100

120

1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

Executive Budget

"Underlying Growth"

$87.4

$78.4

Source: NYS Department of Taxation and Finance; DOB staff estimates.

Forecast $118.3

• Taxpayers also realized capital gains early to avoid higher tax rates at the end of 2010, but even more so in 2012 when the low rates actually expired.

• The underlying growth smoothes the volatility, revealing a strong estimated performance of $87.4 billion in 2013.

The Indicators of New York State’s Tax Base

-15

-10

-5

0

5

10

15

20

2002 2004 2006 2008 2010 2012 2014Per

cent

cha

nge

Personal Income

NYSAGI

PIT Liability

Forecast

Note: Personal income tax (PIT) liability is computed based on 2002 NY State tax law; 2012 liability and NYSAGI data are preliminary. Source: NYS Department of Taxation and Finance; Moody's Economy.com; DOB staff estimates.

II. Financial Plan

For Decades Actual Spending Outpaced Income and Inflation

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Actual Spending

Spending at Income

Billions

Gap Closing/Surplus Plan

FY 2015 FY 2016 FY 2017 FY 2018

MID-YEAR BUDGET SURPLUS/(GAP) ESTIMATE (1,742) (2,889) (2,948) (3,887)

Spending Changes 1,942 4,247 5,348 6,723Agency Operations 358 708 990 1,342Local Assistance 1,624 1,976 2,267 2,104Debt Management 116 110 118 158Initiatives/Investments (156) (232) (394) (499)Adherence to 2% State Operating Funds Spending Benchmark1 n/a 1,685 2,367 3,618

Resource Changes 286 31 (153) (129)Resource Changes (24) 31 (153) (129)Surplus Available from FY 2014 310 0 0 0

BUDGET SURPLUS/(GAP) BEFORE TAX CUTS 486 1,389 2,247 2,707

Financial Plan Impact of Tax Actions

FY 2015 FY 2016 FY 2017 FY 2018

Budget Surplus (Before Tax Actions) 486 1,389 2,247 2,707

Tax Actions (486) (1,234) (2,082) (2,534)

Budget Surplus/(Gaps) After Tax Actions - 155 165 173

Tax Reform Package (For the Financial Plan Period)

Corporate Tax Cut and Reforms $900,000,000 Upstate Manufacturers Tax Cut $98,000,000 Manufacturers Property Tax Credit $408,000,000 18a Elimination/Phase Out $600,000,000

Total: $2 billion

Property Tax Freeze $1,850,000,000 Circuit Breaker $1,700,000,000 Renters’ Tax Credit $1,000,000,000 Estate Tax Relief $1,200,000,000

Total: $5.7 billion

III. Debt Overview

State Debt Outstanding (Millions of Dollars)

56,372

55,692 55,572

55,000

55,200

55,400

55,600

55,800

56,000

56,200

56,400

56,600

SY 2012 SY 2013 SY 2014

State Debt is Projected to Decline for a Second Consecutive Year, the First Time in Over 50 Years

Debt Burden is Steadily Declining At Lowest Level Since the 1960s

0%

2%

4%

6%

8%

10%

12%

14%

1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019

State debt as percent of NYS personal income

Projected

IV. Revenue Outlook

Actual and Base Tax Receipt Growth (percentage)

Actual Base Adjusted Base Change Change Change Historical Average (1990-91 to 2012-13) 4.0 3.4 0.6 Forecast Average (2013-14 to 2017-18) 3.8 4.7 2.5 Forecast Average (2014-15 to 2017-18) 3.5 4.6 2.2 Recessions (1.5) (5.1) (7.6) Expansions 5.9 6.3 3.6

Actual and Estimated Tax Receipt Growth (percentage)

Actual Estimated

FY 2011 FY2012 FY2013 FY 2014 FY2015 FY 2016 FY2017

Personal Income Tax 4.2 7.1 3.8 6.5 3.0 5.8 5.6

User Taxes 10.5 2.6 0.3 3.4 2.5 3.0 2.9

Business Taxes -2.4 8.2 7.4 -3.3 -4.1 3.6 0.6

Other Taxes* 31.8 -3 -2.8 9.4 1.7 -0.9 -2.3

Total 5.6 5.6 3.1 4.7 2.0 4.6 4.1

All Funds Revenue Growth

All Funds FY 2014 tax receipts growth of 4.7 percent and FY 2015 growth of 2 percent are heavily influenced by timing factors. Growth in FY 2014 is inflated by: • Superstorm Sandy recovery spending • The movement of realized capital gains and other non-wage

income into Tax Year 2012 from future years in anticipation of higher federal tax rates in 2013

• Higher revenue as the result of the tax credit deferral program

All Funds Revenue Growth

All Funds FY 2014 tax receipts growth of 4.7 percent and FY 2015 growth of 2 percent are heavily influenced by timing factors. Slower FY 2015 growth is the result of: • The first year of the tax credit deferral payback • The non-recurring nature of Superstorm Sandy recovery

spending by consumers • Tax cuts proposed with this Budget