Guidelines for Wisely Using the $5 Billion Windfall
As rumors of a special session continue, many interest groups are putting forward proposals for how to spend the State’s $5 billion windfall from bank settlements. Proposals range from advancing pre-kindergarten funds for school districts upstate to creating an endowment for special projects at SUNY. Many focus on infrastructure, particularly in light of numerous reports on the deteriorating state of our State and local infrastructure. For example, almost one-third of the state’s sewage systems have been beyond their useful life for more than 10 years, and almost 40 percent of the state’s pavement is in fair or poor condition.1
To assist officials in deciding how to spend the $5 billion windfall, the Citizens Budget Commission suggests using the following questions to separate the good ideas from the bad.
- Will the proposal have costs that continue after the windfall has been depleted? Any proposal with recurring costs should be immediately rejected. The State Legislature should resist the temptation to spend money on long-term commitments, such as school aid or tax cuts and be wary of “temporary” tax cuts or “one-time” school aid infusions. Once a new benefit is created, it is very difficult to take it away.
- Will the proposal improve the State’s long-term fiscal health? The best uses of the windfall money will have dividends that extend well into the future. As a high-tax and high-debt state, New York should place a high priority on proposals to permanently reduce the cost of providing services or prepare the State for future challenges. Investments in environmental and transportation infrastructure would meet these criteria, as would plans to boost savings and reduce long-term liabilities such as paying down debt, replacing planned borrowing with pay-go capital, shoring up the Rainy Day Fund, and fully funding the State’s pension funds. The latter proposals may not be as exciting as building new infrastructure but would produce benefits long into the future.
- Does the proposal have clear economic benefits? As State leaders choose among competing infrastructure projects and other uses of settlement money, priority should be given to projects that address documented needs and will increase the state’s economic competitiveness. For example, if an infrastructure bank is endowed, clear criteria and a formal allocation process should be adopted at the same time. In the past, legislative leaders have used memorandums of understanding (MOUs) to allocate lump-sum appropriations for economic development capital programs. Such practices lack transparency and should be avoided.
If infrastructure investments are selected State leaders should also use the opportunity presented by a special session to extend design-build procurement authority, which is expiring on December 31. Design-build, which awards the design phase of construction to the same company given responsibility for construction, would reduce the time to complete construction, lower project costs, and permit a greater number of projects to be funded. The Department of Transportation found the ability to use design-build procurement reduced project costs by 27 percent.2
Although $5 billion seems like a large sum, it is not when placed in the context of the State’s $138 billion annual budget. The funds should be used wisely to make high priority investments and shore up the State’s fiscal condition, not frittered away on myriad pet causes. Adherence to these guidelines will help sort out the good proposals from the bad.
- New York State Department of Transportation, New York State DOT Transportation Asset Management Plan Draft v 05-02-14 (External Review) (May 2014), pp. 2-8, http://www.tamptemplate.org/wp-content/uploads/tamps/023_newyorkstatedot.pdf; and Office of the New York State Comptroller, New York Cities: An Economic and Fiscal Analysis 1980-2010 (September 2012), p. 19, www.osc.state.ny.us/localgov/pubs/fiscalmonitoring/pdf/nycreport2012.pdf.
- New York State Department of Transportation, “Design/Build Project Delivery for Transportation Projects” (application for the Citizens Budget Commission Prize for Public Service Innovation, February 14, 2014).