A Disappointing DRP
The actual legislation containing the Governor's deficit reductions proposals that was submitted yesterday varies from the original Executive proposal in a number of ways, and reflects some of the ideas suggested by other parties to the negotiations. Most significantly, it ups the number of one-shots to be used to close the $3.2 billion deficit this year from an already problematic 40 percent to 52 percent, by including $391 million in accelerated federal stimulus money. (See Table 1.) This means essentially that New York's federal stimulus package will be used up on a shorter time horizon than originally planned, leaving bigger problems to be faced in fiscal year 2012-13, when the budget gap is expected to reach $19.5 billion. Although 2012-13 seems a long way away, in reality because of the budget calendar the Governor will have to address that gap in just 24 months. That's not a lot of time to figure out how to close a gap that approaches one-quarter of the size of the entire operating budget. The stimulus funds provided an opportunity to buy New York and other states time to address longer run budget problems in a thoughtful way, an opportunity that New York's leaders continue to pass up in favor of short-run patches to support spending at unsustainable levels.
In addition to the increase in one-shots in the plan the Governor also conceded in what remains of the recurring reductions in the big ticket items, school aid, Medicaid and employee compensation. The Medicaid proposals in the original plan, which were percentage reductions applied across all of the health care sectors, have been transformed into a laundry list of small ticket items that may or may not be realizable in the final analysis. (See Table 2.) The new measures involve another "spin up" on the federal government. Hospitals facing an increase in the gross receipts tax will be drawing down federal Medicaid dollars through the State's matching rate, to effectively reimburse them for the cost of the tax increase, a practice the federal government has been trying to eliminate for a number of years. The State savings from the measure is expected to be $45 million. Also on the menu is another delay in nursing home rate reform called "re-basing" whereby facilities would receive a new rate to reflect updated cost data. Although the proposed fix had flaws, no one can deny that nursing home rates make no sense in New York and that reform is desperately needed. Instead of resolving the problem with new policies it is likely the Legislature will take the easy way out by postponing planned changes in favor of a quick budget plug.
In school aid the scenario is much the same. Rather than take the heat for spreading the pain of cuts in a way that prioritizes ability to pay as the Governor originally proposed, the new plan paints all districts with the same brush regardless of ability to pay. Districts will now face cuts that equal 1.58 percent of their remaining aid allocations, whereas under the original proposal the cuts ranged from 2 to 9 percent depending on district wealth and student need. The restorative impact of the change in the plan is greatest in the wealthiest districts. For example, in the wealthiest 10 school districts in the State, cuts planned under the new DRP were reduced by 82 percent. For the 10 poorest districts, the return on the change to a flat rate of 1.58 percent was much smaller, reducing their cuts by 27 percent. Combined, the wealthiest decile of districts is $14.6 million better off under the new DRP compared with the Governor's original plan, and the poorest decile only $11.2 million.
The third big ticket item, employee compensation, which is expected to increase by 23 percent in the next three years, remains untouched. Talks to add a new pension tier, which would also provide significant long-term local budget relief, appear to have stalled. Legislation to address this item was not included in the DRP bill.
On the whole the new DRP represents a step backward from the Governor's original proposal. If the State is to avoid a slash and burn assault on its services in 24 months, spending must come down in meaningful ways that have recurring value.
By Elizabeth Lynam and Tammy Pels