Blog State Budget

Pluses Outweigh Minuses in Responsible, On-Time NYS Budget

April 03, 2012

It wasn’t an April Fools’ joke - an on-time, responsible budget was passed in advance of the start of the new fiscal year on April 1, and the bills were made public several days ahead of time. The progress of the budget was aided by the fact that a revenue package that raised an additional $1.9 billion passed in December 2011, and that separate pension reform legislation was adopted a few weeks ago. State leaders are to be congratulated for their timeliness, and for working together to reach satisfactory compromises on a variety of issues.

For the most part the budget deserves an enthusiastic thumbs-up, although it does contain a small number of misguided measures. Here is a run-down on the hits and misses.


Thumbs-up to:

A Very Modest 2 percent Increase in State Spending - The Governor had proposed a 2 percent increase in state-financed spending in the Executive Budget, and the Legislature did not deviate from this framework, adding a net increase of only about $100 million to total state spending. Last year, the Governor established two-year funding commitments for school aid and Medicaid, tied to the expected rate of growth in personal income and the medical component of the consumer price index, respectively. That commitment to limited growth in two of the largest areas of state spending held in the second year. The modest overall 2 percent spending increase, for the second in a row, represents a significant departure from past trends - the average annual growth rate from fiscal years 1999-00 to 2009-10 was 6 percent. The low growth rate and the expectation of continued cost containment in the out-years of the financial plan result in a projected fiscal year 2013-14 budget gap of around $900 million, a figure that is also low relative to historical standards.


State Support for the MTA - The Metropolitan Transportation Authority (MTA) needed the Legislature to raise its debt cap and to provide $770 million in capital support, starting with a $150 million capital grant next year. This support is a key component to the Authority’s ability to complete its current five-year capital plan. The final budget approved these requests, while rejecting the Senate’s proposal to further erode the MTA’s dedicated revenue by exempting libraries, towns and villages from the mobility tax. The MTA still lacks adequate resources, but State leaders did provide a portion of what is needed in the short run.


Rainy Day Fund - The budget agreement permanently authorizes a deposit to the rainy day fund equal to 0.3 percent of current-year general fund disbursements, about $170 million this year according to current estimates. Along with the $100 million contribution authorized for the fiscal year 2011-12 year’s end, a deposit this year would be the second in a row.


Juvenile Justice Reforms - Last year the State made a commitment to close underutilized juvenile detention facilities after it was revealed that some were fully staffed but empty. This year’s budget continues the reforms with the Close to Home program, which will allow New York City to develop community alternatives for lower risk youth in non-secure settings. These kinds of alternatives to detention save money and have the potential to provide better services.


Coordinated Capital Planning - The budget establishes the New York Works Task Force to coordinate capital spending among state agencies and authorities. Transportation infrastructure in particular will be a focus with the participation of the Port Authority, the Department of Transportation, and the MTA. The New York Works Task Force will consist of 15 members, nine appointed by the Governor and six by the Legislature. New York’s capital planning process has been fragmented and less than strategic; this initiative will help move the State in the right direction.


Local Medicaid Financing - Unlike other states, New York requires its local governments to pay a large share of Medicaid costs, contributing to a high and inequitably distributed local tax burden.[1]   Legislation passed in 2005 limited the growth in local costs for the program to 3 percent annually. The budget will reduce the growth rate on the local share to 2 percent in 2013, 1 percent in 2014, and 0 percent in 2015 and beyond. This means that starting in 2015 local governments will pay a fixed amount and State government will cover all growth in program expenses. Although a full takeover of the entire local burden would have been optimal, in light of fiscal realities, this is a positive step that will hopefully lead to the gradual full State assumption of Medicaid costs in the future.


A Smaller Competitive School Aid Grant Pool - State school aid serves an important role in equalizing resources available to K-12 students among districts of varied wealth and need. After two years of cuts to state aid, school districts will see their first increase in state funding next year. As a recent CBC analysis showed, increased aid needs to be highly targeted to compensate for the inequitable distribution of the recent cuts.[2]  In this context, the Governor’s proposed $250 million for competitive grants was too high. The final budget increased the amount to be allocated by general aid formulas by about $200 million and reduced the size of the grant pool to $125 million to be disbursed over two years.


State Agency Savings - Next year, funding for state agencies will be flat. Most of the state workforce agreed to wage freezes last year, but additional efficiencies and savings will be needed to offset other cost inflators. The budget includes a number of reforms, such as agency mergers and procurement reform, which will aid managers in modifying agency operations to fit budget constraints.


Limited Gimmicks – Although the budget still reflects gimmicks authorized before Governor Cuomo took office (including $970 million in deferred business tax credits and $782 million in amortized pension contributions[3]) it is notable for its lack of reliance on new one-shots and gimmicks.



Thumbs down to:

Economic Development Program Expansion - Almost every year a new economic development program is born and this year was no exception. The final budget allocates another $150 million in capital grants for regional economic development councils and creates a new $75 million economic development fund. Last September, the CBC found all economic development spending in New York State, including capital grants, tax breaks and direct subsidies added up to fully $6 billion a year,[4]  almost as much as the State spends on its university system. While the first round of regional council competition last year energized stakeholders to commit to a collaborative planning process, a second round of competitive grants is premature. Before additional financial commitments are made, accountability for existing programs should be improved. Performance metrics and evaluative analysis should be systematically employed to identify failing programs for elimination or redesign before new programs are grafted onto to an already fragmented governance structure.


Extra Hydropower Allocation Dedicated to Western New York - The New York Power Authority runs a variety of power subsidy programs for economic development that are supplied by the hydropower plant at Niagara Falls. Most of the power allotments in the program must be used within the Western New York region. Any unused power was sold on the market and the proceeds used for general operations or, occasionally, for an economic development deal in another part of the State. This flexibility will no longer be allowed. Proceeds from the sale of unallocated hydropower now must be distributed to businesses within a 30-mile radius of the Niagara Power Project. A CBC analysis of the economic development power programs found the monetary value of these power subsidies to be substantial, and lacking in accountability measures.[5]  Moreover, subsidizing power costs for companies runs counter to New York’s conservation goals by encouraging consumption. Instead of being subjected to additional parochial constraints, the power programs should be completely overhauled.


Member Item Allocation Authority - Although the Governor has vowed to ban member items, an allocation of up to $38 million from excess special revenue funds can be transferred into the Community Projects Fund (the typical vehicle for member items) at the request of the Budget Director after he/she receives a request to fund an item from the Legislature.


The Spousal Refusal Loophole in Medicaid Eligibility Remains Open - In New York one spouse may refuse to provide financial support to the other requiring long term care. This loophole can be exploited to protect the assets of individuals who would otherwise be required to pay for care. The Medicaid Redesign Team recommended changes to this provision, which the Governor has included in his proposed budget for two years. The Legislature rejected the change.


AIM Spin-Ups for More than a Dozen Local Governments - The cities of Amsterdam, Auburn, Buffalo, Corning, Lackawanna, Long Beach, Olean, Rensselaer, Rochester, Syracuse, Watertown, White Plains, and Yonkers can request early payment of their aid and incentives for municipalities (AIM) funds. This technical one-shot will allow them to “count” funds twice in the first year of the spin-up, taking advantage of the different State and local fiscal year start dates. In the year the practice ends the municipalities will come up short, revealing the hole in the budget a one-shot creates. For the City of Albany the payment in lieu of taxes made by the State government is being advanced, increasing by $7.85 million in fiscal year 2013 and decreasing by the same amount in fiscal year 2033. Although many localities are under fiscal pressure from rising expenses and the new property tax cap, authorizing these kinds of fiscal gimmicks only pushes problems down the road.


Overall, the fiscal year 2012-13 budget and is replete with positive policies and the modest growth rate, continued spending controls, and limited reliance on gimmicks to support spending will help the State continue its fiscal turnaround.


By Elizabeth Lynam and Tammy Gamerman

[1] See Citizens Budget Commission, A Poor Way to Pay for Medicaid: Why New York Should Eliminate Local Funding for Medicaid, December 2011.

[2] See Citizens Budget Commission, Improving the Poorly Targeted Proposed School Aid Increase, March 2012.

[3] See Citizens Budget Commission, The State and Local Pension Stretch, June 2010.

[4] See Citizens Budget Commission, Avoiding Past Mistakes: Four Principles for Governing Regional Economic Development Councils, September 2011.

[5] See Citizens Budget Commission, Overhauling the New York Power Authority’s Economic Development Power Programs, September 2009.