NEW YORK (Reuters) - New York state's current budget has a $350 million hole while next year's gap has widened and the likelihood of a weak bonus season on Wall Street may further shave revenue, the state Budget Division said in a statement on Monday.
Saying tax collections resemble a bouncing ball, Governor Andrew Cuomo told WCNY radio in Albany that "there's no doubt but that the trajectory of the bouncing ball has been down."
New York's economy depends heavily on the banks and brokerages that have announced tens of thousands of layoffs around the world as they struggle with exceptionally volatile markets due to Europe's lingering debt crisis.
Closing the $350 million deficit in the $133 billion budget for the year that ends on March 31, 2012, will require not hiring staff and reviewing discretionary spending.
Cuomo also said he might have to recall the Legislature.
"We may -- I may need legislation (and) you could be making such dramatic changes to the budget that the Legislature passed that fairness dictates some of the changes be done in consultation with the Legislature," he said.
Despite liberal calls for raising taxes on the rich to cut the country's deficit, and pressure from his fellow Democrats in New York State, Cuomo stood firm against extending a state income-tax surcharge on millionaires that expires this year.
Though this is a "fairness" argument, Cuomo said the state surcharge harms the economy.
"The question is: 'How do you pay the immediate bills and do this in a way that is strengthening the state's economy?'" he asked. "You'll have a short-term fix that actually is making the long-term problem worse."
The governor, repeating that the fiscal outlook was "grim," has already told state agencies to figure out how to cut spending by 2.5 percent next year.
About 94 percent of the state's workforce is unionized. The two biggest unions have reached new labor accords, but talks continue with others, and the terms might get less generous.
Looking ahead, a $3.25 billion shortfall is forecast for fiscal year 2013, followed by a $3.3 billion gap in 2014 and a $4.8 billion deficit in 2015.
The influence of Wall Street on New York is seen in a $600 million drop in withholding income-tax collections, mainly because financiers are reducing quarterly tax payments as they expect yearly tax bills to be lower.
"The reduction in withholding is driven by a significantly weaker financial-sector bonus forecast for the second half of fiscal 2012," the statement said.
The impact of federal reforms on the financial industry is also "uncertain," the Budget Division said, terming this a major risk for its Wall Street bonus and income forecasts.
One of the reasons Wall Streeters hold such sway over New York's economy is that when profits are high, their spending helps create one to three jobs in the service sector, ranging from restaurants to law firms.
New York's ability to borrow under its outstanding debt cap will shrink to $726 million in fiscal 2014 from $3 billion in the current fiscal year, the Budget Division said.
"Measures addressing capital spending priorities, debt- financing practices, and the inherent volatility of personal income as a basis for long-term planning may be considered in order to stay within the statutory limitations," the division said.
New York is one of the biggest borrowers in the $3.7 trillion municipal bond market. State authorities have issued nearly $134 billion of debt, not including general obligation bonds, according to the state comptroller.