Report Card: NY State Executive Budget, FY2016-2017
These are midterm grades for the Governor’s Executive Budget; final grades will be given at the end of the annual budget process determined by the outcome of negotiations between the Governor and legislative leaders.
Fiscal Discipline: A-
The Executive Budget deserves an excellent grade for continued spending restraint and no tax increases. Total state-financed spending would increase less than 2 percent with agency spending held flat. The two largest expenses, Medicaid and school aid, would both be kept close to their respective caps. With regard to revenues, tax rates would not increase, and the rational tuition plan for public universities would be extended. The School Tax Relief (STAR) program would also improve by capping benefits –a proposal that was unfortunately rejected in last year's budget negotiations.
The grade falls short of a perfect A because of three shortcomings. First, there is a repeated reliance on unspecified savings to achieve future budget balance. The savings are worth $1.7 billion in fiscal year 2018 and grow to $4.6 billion by fiscal year 2020, but the details are to be negotiated with the Legislature. This is not a plan to achieve savings, but a plan to “figure it out later.”
Second, the budget includes objectionable new education tax credits for donations to public and private schools. Third, in what appears to be an attempt to reduce state spending without actually improving operations, operating expenses of the Erie Canal Corporation would be transferred from the New York State Thruway Authority to the New York Power Authority. The “savings” would allow the State to end its $90 million subsidy to the Thruway Authority for state police and other authority operations.
Use of Settlement Funds: B+
The Executive Budget proposes spending a majority of $2.3 billion in one-time legal settlement funds appropriately (it seems) for non-recurring expenses, including $900 million for transportation ($700 million for the Thruway Authority and $200 million for the Department of Transportation), and $640 million for homeless and affordable housing ($590 million for capital expenses).
In contrast, $340 million of proposed settlement spending is problematic. It is to be used to fund a three-year tax credit for those who spend more than $50 per year on tolls paid on Thruway Authority roads and bridges. The Governor has additionally pledged to freeze Thruway tolls through 2020. There is no justification for using one-time revenue to subsidize those who do the most driving, much less freeze tolls that are necessary to fund the maintenance and operation of bridges and highways.
Managing Personnel Costs: B
Since taking office the Governor has held the line on state agency spending largely by controlling headcount and negotiating limited wage increases. In this proposal the number of state employees would remain essentially flat, and reductions would be made in the State’s payments of retiree health care costs.
Two other proposals need more work. First, binding arbitration, including provisions for fiscally distressed municipalities, would be extended without needed reforms to sufficiently account for a local government's ability to pay. Second, the fiscal impact of the Governor’s proposed minimum wage increase is not documented. The budget notes vaguely the “broad budget implications” while also stating the wage increase would not have a “material impact on state costs.”
Capital Planning and Infrastructure: C
A set of ambitious projects has been proposed without a rational, coordinated capital planning process. Most of these projects are to be funded through unspecified public-private partnerships or other yet-to-be determined funding mechanisms. In addition, borrowing for these projects could put the State dangerously close to the statutory debt limit in fiscal year 2018.
The Executive Budget is also silent on how the State’s recent commitment to fund the Metropolitan Transportation Authority’s (MTA) capital program will be met; instead a pledge is made to provide funding at an unspecified future date. Similarly, the budget lacks details regarding how the substantial unfunded costs of the $3.9 billion Tappan Zee Bridge replacement, the construction of which is well underway, will be covered. At budget hearings, Thruway Authority staff noted it will likely use part of its $700 million allocation of one-time legal settlement funds for the bridge and fund the balance via “innovative financing solutions.”
On a positive note, the Executive Budget authorizes project delivery tools to jumpstart certain transportation developments, including expanding design-build authority to the redevelopment of Empire Station Complex (Moynihan Station, Penn Station) and providing the MTA with the flexibility to enter into public-private partnerships to maintain and rehabilitate facilities. The Executive Budget would also streamline MTA purchase contract policies by cutting red tape in procurement and accelerating review of contracts and contract amendments.
Economic Development: C
Despite scant documentation that such subsidies work, the Executive Budget extends the Excelsior Jobs Program and proposes more than $1 billion in new economic development capital grants, including $470 million for university-related initiatives, $200 million for losers of the Upstate Revitalization Initiative, $110 million in new SUNY/CUNY 2020 challenge grants, and a sixth round of $150 million in Regional Economic Development Council (REDC) capital funding. While transparency on state business tax subsidies has improved, performance reporting for economic development programs is still lacking; a recent CBC report found actual job results documented for less than one-fifth of REDC projects.
Local Government Assistance: D
The Executive Budget comes close to failing in its proposal for local government assistance. It would increase the local government share of Medicaid costs—exclusively for New York City—and also require a greater local contribution from New York City for senior colleges of the City University of New York. No other state requires local governments to pay as much toward Medicaid as New York. Capping the growth of these expenses for local governments was the right thing to do, and rolling the cap back for New York City would be a giant step in the wrong direction.
The Executive Budget also fails to improve school aid formulas that favor wealthier districts and would allocate $590 million of the $991 million in new aid through restorations to the Gap Elimination Adjustment ($190 million) and expense-based reimbursements ($400 million) that favor wealthier districts.
- Education, Labor and Family Assistance (ELFA) Article VII memo (January 2016), p. 13, http://publications.budget.ny.gov/eBudget1617/fy1617artVIIbills/ELFA_ArticleVII_MS.pdf; and New York State Division of the Budget, FY 2017 Executive Budget Financial Plan (January 2016), p. 42, http://publications.budget.ny.gov/eBudget1617/financialPlan/FinPlan.pdf.