I am Sandra Beattie, the Acting Budget Director for the New York State Division of Budget. Prior to becoming the state's Acting Budget Director, I have had the great honor of serving as New York's first Deputy Director at the division for over three years.
Our team at the Division of Budget has a long history working across party lines to ensure sustainability, results driven outcomes for over 200 million New Yorkers, which we serve. I am proud to continue this legacy under Governor Hochul's bold leadership and work in collaboration with our partners across the state agencies to formulate and deliver a budget that will make our state stronger, safer and more accessible for the years to come.
To begin, I want to acknowledge New York's impressive record of fiscal discipline and operational efficiency, keeping spending affordable for over a decade, achieving the highest credit rating since 1972 and ensuring that New Yorkers receive the benefit for every dollar invested.
Before we look at the year ahead, I want to take a few minutes to review where we've been. This time last year, this state was experiencing a winter surge in COVID-19 cases, strong growth in U.S. output, continuing upward trend in tax collections, a second year of emergency COVID-19 spending for rent relief, utility arrears and aid to small businesses, balanced operations over the multi-year financial plan for the first time in history and an influx of federal recovery aid.
In contrast, we now find ourselves facing recession fears, weakening economic activity, which is expected to become apparent in our tax collections. Tax collections are a lagging indicator of changing economic activity. Continued COVID recovery, but with less federal funding as the public health emergency ends, pressing issues facing the state such as MTA solvency, assistance to thousands of asylum seekers coming to the state, barriers to mental health access and public safety concerns to name a few. And inflationary increases that are particularly burdensome for minimum wage earners.
Looking ahead, now I'll discuss the nation and the state's economic outlook. Following a volatile 2022, the division forecasts a mild downturn in 2023. U.S. real GDP is expected to decline in the first half of the year, and slowly recovering in the second half, posting an annual average GDP growth of 0.5 percent.
The economy is already showing signs of weakness with two months of declines in real consumption in November and December. Weakening real business investment coupled with an already weak housing market. However, the recession is expected to be shorter and less severe than historical averages. As we all know, we have been experiencing record high prices, but inflation is projected to ease in 2023.
As of December 2022, New York State's economy had regained 87.8 percent of private sector jobs that we lost in March and April of 2020. In Fiscal Year 2022, the state's total wages grew at a strong 12.4 percent as jobs recovered and due to inflation in strong equity market performance. However, the division estimates a slowdown in wage growth due to a decrease in hiring and a decline in bonuses.
As we look at the historic view of U.S. real GDP and the US unemployment rate, note the sharp decline and the sharp rebound following 2020. Given the potential for a mild economic downturn and subsequent recovery, the unemployment rate is expected to slowly rise from its current level of 3.5 percent, peaking at 5 percent in mid-2024.
The consumer price index has hit its highest levels in over 40 years, peaking at 9.1 percent growth in June 2022 since June sharply declining energy prices and the Federal Reserves continued monetary tightening, pulled the year over year change in inflation down to 6.5 percent as of December. Inflation is projected to ease significantly to 3.9 percent in 2023, and to normalize further to 2.8 percent in 2024.
The state's labor market continued its recovery from the global pandemic, regaining 86.5 percent of its job losses as of December 2022. While many of the state's major economic sectors have not fully recovered from pandemic related job losses, the New York sectors that have fully recovered include but are not limited to transportation, warehousing and utilities, financial activities, and health care and social assistance. However, the state's labor market still lags the nation, which fully recovered its pandemic related job losses by August 2022.
The state's unemployment rate of 4.3 percent was the sixth highest in the nation in December 2022. The division projects unemployment to go up over the course of 2023 and part of 2024 with the weaker economy. Since the fall of 2020, New York State Worker Adjustment and Retraining Notifications, otherwise known as WARN notices, have registered several high profile layoff announcements, including Humana, Goldman Sachs, Google, Meta, and others. We expect to see these ramifications in our data beginning later this month and into the Spring.
Since the start of the labor market's pandemic recovery, the state's unemployment rate has been pushed up by New York City, which posted a 5.9 percent unemployment rate in December 2022.
The rest of the state has performed better than New York City with an unemployment rate of 3.2 percent in December 2022, a 0.3 percentage point below the national average of 3.5 percent.
The state's finance and insurance sector bonuses for a given fiscal year are usually highly correlated with the stock market performance of the prior calendar year. The Division estimates a decline of 25.2 percent in finance and insurance bonuses in fiscal year 2023, following strong growth of 14.6 percent in fiscal year 2020. Finance and insurance sector bonuses are projected to decline further by 5.1 percent in fiscal year 2024, as the Federal Reserve completes its monetary tightening cycle.
The disruptive forces of the pandemic led to the largest spread on record between personal income and wage growth in fiscal year 2021 due to the federal pandemic related stimulus. This state's personal income is projected to increase moderately by 0.8 percent with the lapse of most federal pandemic related stimulus. Given the previously discussed prospect of an economic downturn, we expect a modest growth rate of 3.5 percent in fiscal year 2024.
As we look beyond the economic outlook, state finances have feared better than expected since Covid-19 began. In fiscal year 2021, during the acute phase of the pandemic, tax collections declined by just 0.6 percent from fiscal year 2020, bolstered by federal economic stimulus and have since soared. In fiscal year 2022, collections grew by 27 percent, equal to about seven years worth of typical tax receipts in any one given year.
In fiscal year 2023, collections are expected to increase by an additional 11 percent to a total of $115 billion or $34 billion higher than fiscal year 2021 results. The current year is on track to record a large surplus, but tax collections are expected to peak in the current year in fall in fiscal year 2024, as a mild recession begins. We are therefore harvesting the gains of the last two years to prepare for the uncertainties ahead.
Consistent with state law, staff from the executive, legislature, and the State Comptroller met in the middle of November to jumpstart the state's process towards a timely enacted budget, otherwise known as the quick start process. By jumpstarting the formal exchange of information and analysis, quick start is intended to stimulate timely discussion and analysis of economic and fiscal factors likely to shape the fiscal year 2024 budget deliberations.
Additionally, a joint report was publicly issued that discusses in detail the current state of fiscal affairs, as well as projections for the upcoming fiscal year. Though there are differences between the respective estimates, representatives from all the parties agreed that the state's economic recovery has slowed and remains vulnerable to a range of risks.
Higher than expected tax receipts have contributed to a general fund surplus of $8.7 billion. Building on the Governor's pledge to honor the state's current commitments through good and bad times, the surplus will be used to strengthen the state's capacity to weather the economic downturn on the horizon.
More than half of the surplus will be used to accelerate deposits to principal reserves that have been planned for fiscal year 24 and 25, bringing the balance held in principle reserves to more than 15 percent of spending by the end of March. This will put us at two years ahead of schedule. A further $600 million will be used to fund deposits to the Retiree Health Trust Fund that were scheduled in later years, bringing the balance to $1.2 billion.
Additionally, to ensure the state can abide by the limits imposed by the Debt Reform Act, $1 billion will be used to recapitalize the debt reduction reserve. By the end of fiscal year 2023, the state will have boosted its reserves by over $20 billion since fiscal year 2020. Consistent with the Governor's agenda, the fiscal year 2024 executive budget, we are supporting several high priority initiatives for the state, including advancing the MTA's funding plan, investing in health care operations, and helping New York City meet asylum seeker needs. In addition, we will introduce a variety of other initiatives that will have a positive impact on New Yorkers.
To improve the lives of all New Yorkers, we have made historic investments in the State's two largest programs, School Aid to educate the next generation and Medicaid for a healthier New York. Agency operations funding is increased for essential services. State operating funds, spending, and all fund spending are growing less than inflation.
The state is increasing all fund spending by 2.4 percent. This equates to $227 billion as the new all fund spending for fiscal year 2024. State operating funds spending will total $125 billion. This is an increase of $2.5 billion or 2 percent from the current fiscal year.
Tax revenue supports the majority of state spending. Other receipts include tuition, patient income, and fees, most of which are dedicated for specified purposes. Approximately two-thirds of state spending is for local assistance - that includes payments to local governments, school districts, health care providers, managed care organizations, and other entities, as well as financial assistance to or on behalf of individuals, families, and not-for-profit organizations. As mentioned, School Aid and Medicaid account for more than half of local assistance spending. The remaining spending supports operational expenses, fringe benefits, and other fixed costs.
Aid from the federal government helps to pay for a variety of programs, including Medicaid, Public Assistance, Mental Hygiene, School Aid, Public Health, Transportation and other activities.
The Division will work with our partners across government on both sides of the aisle to control spending. Legislative adds to the executive budget may include restorations of proposed savings measures and new funding for programs. Prior to COVID, adds were relatively modest. Excluding School Aid, table adds were roughly $180 million to $400 million between fiscal years 2015 to 2021.
In fiscal year 2022, substantial sums were added in negotiations for pandemic assistance and restorations of proposed cuts, made possible in large part by the American Rescue Plan. As we engage with the legislature in the next phase of the budget cycle, we remain focused on returning to pre-COVID spending levels and adhering to our guiding principles of fiscal discipline and operational efficiency.
The executive budget includes a number of initiatives that do not have recurring costs and do not add to the state's out-year budget gaps. A sampling of these include: $1.5 billion over two years to advance New York City with migrant assistance and services, $200 million for monthly electric and gas bill credits for income eligible consumers, $75 million for SUNY to support innovation and help meet future workforce needs.
The executive budget financial plan projects a $5.7 billion out-year budget gap in fiscal year 2025. Since the enacted budget, general fund tax receipts before proposed actions in the fiscal year 2024 executive budget have been reduced by $7.5 billion in fiscal year 2025, $8 billion in fiscal year 2026, and $5.3 billion in fiscal year 2027.
The reductions, which are based on the weakening economic activity, are the main drivers of the projected out-year budget gaps. If the fiscal year 2025 budget is balanced with recurring savings, the budget gap for fiscal year 2026 would be $3.3 billion. The projected budget gaps shown here do not reflect the use of any reserves to balance operations.
Before discussing the road ahead, I'll now spend a few minutes reviewing the state's debt metrics. The state has been responsible in managing its debt burden over the past decade and remains committed to maintaining an affordable level of debt. Rating agencies and investors have shown confidence in the state's record for prudently managing debt and ensuring it remains affordable.
The state's outstanding debt has grown at less than one percent since 2014, despite increasing capital investments in commitments for housing, transportation, higher education, and the environment, among others. In the fiscal year 2023 enacted budget, the state included $6 billion of cash resources over a multi-year period to fund capital expenses that would have otherwise been funded with debt.
These resources remain in the fiscal year 2024 executive budget and demonstrate the state's commitment to debt affordability. Debt affordability - It's calculated by debt outstanding, divided by personal income of the state. The lower the measure, the better the state's debt affordability. There has been a dramatic improvement in this measure over the past 60 years. The state's debt burden peaked in the 1970s when the state assisted New York City in responding to their financial crisis. Since then, the debt burden has steadily declined. As of March 31st, 2020, the state is projected to have a debt to personal income ratio of 3.8 percent, the lowest level since we started keeping track in 1969.
Given the context I just outlined, the Division of Budget is committed to taking steps required to prepare and help New Yorkers navigate the uncertain times ahead under the Governor's leadership. Economic turning points create heightened risk to the financial plan. In the two recessions prior to COVID-19, tax receipts fell steeply and for a longer period of time than originally expected.
While the Division's forecast is based on reasonable assumptions, the impact of an economic slowdown is highly unpredictable. The surplus will be used to strengthen the state's capacity to weather the economic downturn on the horizon. More than half of the surplus will be used to accelerate the deposits to the principle reserves that had been planned for fiscal year 2024 and fiscal year 2025. This will bring the balance held in principle reserves to more than 15 percent of spending by March 31st, 2023, two years ahead of our planned schedule.
The financial plan maintains principle reserves and other reserves for specific purposes such as future labor agreements. Last year, the state deposited $5 billion, and we plan to deposit another $10.5 billion by the end of March 2023 to achieve a total of $19.5 billion, equal to the 15 percent of spending the Governor committed to in October 2021.
Beyond the unpredictable nature of economic downturns, specific risks include the depth and impact of a recession, upward spending pressure for existing programs, new commitments from the legislature without new funding sources, and the state's dependence on a range of federal approvals to implement savings measures and receive reimbursement for costs and spending pressures that it has incurred.
The Division looks to execute on the Governor's commitments to serve all New Yorkers regardless of political party. Like in prior years, this year's executive budget will help New Yorkers at every stage of life to include strengthening the state's commitment to helping New Yorkers safe with historic investments to eliminate gun violence and improve the criminal justice system. Recognizing the connection between safety and the mental health system, this budget contains a long-term, $1 billion investment in mental health services and creating 800,000 new homes over the next decade, on top of last year's, $10 billion investment to make affordable housing more accessible.
The fiscal year 2024 executive budget is an investment in our diverse set of residents. Key investments include funding, energy, affordability, and the Empower Plus Low-Income Home Retrofit program. This will include $200 million to provide relief to New Yorkers experiencing high electric bills, enhancing the SUNY and CUNY campuses for over 1.1 million higher education students. Furthering school aid investment with a $3.1 billion increase. The largest increase in history.
Expanding access to affordable child care, including a four-year $7 billion commitment to improving the child care assistance program, improving outdoor areas with a $200 million investment in our state park system, funding $34 billion to improve high-quality health care. This is the largest Medicaid investment in our state's history. Nearly double the fiscal year 2011 value.
Making public assistance more accessible for millions of New York families, expanding access to job opportunities through continuous recruitment and in new centers for careers in goverment. With a $7.8 million investment to meet the changing workforce demands of state agencies and indexing the minimum wage to inflation for the Northeast region to ensure that no single year's increase would threaten employment.
Like this budget, the Division's focus remains on serving all New Yorkers.
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