Reallocate Settlement Payments to Boost Rainy Day Funds
On June 20 the New York State Department of Financial Services announced a settlement with Deutsche Bank for $205 million.1 This adds to an extraordinary amount of money–more than $11 billion –in litigation settlements received by New York State since fiscal year 2014-2015. Nearly all of these funds have been allocated by State leaders; some of the uses have more merit than others, but one major shortcoming is that none of the funds were allocated to boosting reserves.2
Almost two-thirds of the funds have been allocated to three areas: economic development ($2.8 billion), transportation ($2.5 billion), and operations ($2 billion). Two of these uses are particularly troubling. First, as CBC has documented, the State has a poor record on economic development spending efficacy and disclosure—yet this has not stopped State leaders from creating new programs and expanding old ones. For example, in 2015 $1.5 billion in settlement funds were allocated to the Upstate Revitalization Initiative, which awarded $500 million each to three Regional Economic Development Councils with little accountability, use-criteria, or public disclosure.3
Second, the State has become increasingly reliant on settlement dollars to fill its operating budget gaps; in the fiscal year 2019 budget, $652 million was used to close the gap, well above the $100-$200 million annually the State received and used in prior budgets.4
Other notable allocations of the funds include repayment of $850 million in one-time expenses by the Office for People with Development Disabilities (OPWDD), a $1.1 billion allocation to the Thruway Authority for the new Governor Mario M. Cuomo Bridge, and $640 million toward expanding housing programs.5
A better use of these settlements would have been to bolster the State’s rainy day funds to the recommended level of 10 percent of general fund tax revenues.6 The State’s rainy day reserves currently represent only 2.7 percent of general fund tax revenues, and no additions have been made since State Fiscal Year 2014-2015.
Fortunately, the State has not yet spent all the funds it has allocated; at the end of fiscal year 2018, about $5 billion in settlement funds remained unused, including $1.3 billion for the Upstate Revitalization Initiative and $386 million of $400 million allocated to the second phase of the Buffalo Billion.7 Where practical these funds should be reappropriated to the State’s reserves. At a minimum, the recently realized $205 million, and $76 million that remains unallocated, should be deposited directly into the State’s rainy day fund.
- New York State Department of Financial Services, “DFS Fines Deutsche Bank AG $205 Million for Unlawful, Unsafe and Unsound Conduct in its Foreign Exchange Trading Business” (press release, June 20, 2018), https://www.dfs.ny.gov/about/press/pr1806201.htm.
- New York State Division of the Budget, FY 2019 Enacted Budget Financial Plan (May 2018), p. 38, https://www.budget.ny.gov/pubs/archive/fy19/enac/fy19enacFP.pdf.
- Riley Edwards, An Assessment of Performance Reporting by Regional Economic Development Councils (Citizens Budget Commission, November 29, 2015), https://cbcny.org/research/assessment-performance-reporting-regional-economic-development-councils.
- This includes $383 million for General Fund Operating Purposes, $194 million in Metropolitan Transportation Authority Operating Aid, and $75 million in Department of Law Litigation Services Operation. See: New York State Division of the Budget, FY 2019 Enacted Budget Financial Plan (May 2018), p. 38, https://www.budget.ny.gov/pubs/archive/fy19/enac/fy19enacFP.pdf.
- Patrick Orecki and Jamison Dague, Bridging the Financial Gap; Funding the Governor Mario M. Cuomo Bridge (Citizens Budget Commission, October 12, 2017), https://cbcny.org/research/bridging-financial-gap.
- Mariana Alexander and Timothy Sullivan, “California Dreaming; NY Should Build Reserves to Prepare for a Rainy Day,” Citizens Budget Commission Blog (March 12, 2018), https://cbcny.org/research/california-dreaming.
- Office of the New York State Comptroller, Openbook, “State Agency Spending Search” (accessed on June 26, 2018, last updated May 31, 2018), http://wwe2.osc.state.ny.us/transparency/spending/spndReport.cfm#spndng.