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April 5, 2010



DiNapoli: Stop Playing Games With State Deficit

Report Highlights Decade of Complex Transactions to Mask State’s
Real Fiscal Condition, Identifies Hundreds of Swept Funds

New York State has masked budget deficits and spending growth for more than a decade by shuffling money between accounts, off-loading operational spending to dedicated funds and borrowing, according to a report released today by State Comptroller Thomas P. DiNapoli.

“New York needs to stop playing games with the deficit,” DiNapoli said. “The state dips into dedicated funds here and shifts money over there, all to cover cash shortfalls and avoid making the difficult decisions needed to align spending with revenues. The end result is the state’s real fiscal condition is impossible to pin down. Every time the game is played, taxpayers lose.

“If the state’s true structural deficit is hidden, hard decisions can be avoided and everyone can pretend things are fine. But things are not fine and they can’t be fixed by borrowing our way out. New York families are facing up to fiscal reality every day. It’s time the state did the same.”

The General Fund is the main operating fund of the state and has historically been used to measure the state’s projected budget deficit. However, the General Fund is increasingly providing a distorted view of the state’s financial health because money is shifted in and out of this account. Consequently, the size of the state’s underlying structural deficit is difficult to track and obscured.

In 2009-10, the state used approximately $6.4 billion in fund sweeps, shifts and temporary loans, and rolled nearly $3 billion in delayed payments into the new fiscal year. These complex shuffles between accounts distort the state’s bottom line.

DiNapoli’s report identified methods that are used to manipulate the state budget to obtain budget balance in a single fiscal year but mask the state’s structural deficit and long-term problems:

Robbing Peter to Pay Paul: Fund Sweeps

  • Since 1985, the number of state special revenue accounts, which are funds dedicated to a specific cause or program, increased from 205 to 720 accounts. The state has increasingly been taking, or sweeping, these dedicated funds to provide one-time influxes of cash for the General Fund. This has contributed to the structural imbalance by allowing recurring spending to exceed recurring revenue. In addition, individuals who are paying special use charges or donating money for research into diseases or for other good causes are not benefiting from these funds.
  • Over the past 10 years, $2.9 billion has been swept from these funds for budget relief including $1.8 billion, in the last three years. Over the past 10 years more than $850 million has been swept from the Environmental Protection Fund.
  • The Division of the Budget (DOB) also has been given the authority to “blanket” sweep more than $1 billion from dedicated funds since 2007-08. Blanket sweeps do not identify what funds will be swept or the impact of the sweeps on the affected funds. Appendix A of the report details the hundreds of accounts that were swept to backfill the General Fund through blanket sweeps.

Off-Loading General Fund Spending to Hide Spending Growth

  • Day-to-day state operating costs have been shifted from the General Fund to other funds, hiding spending growth and the true cost of running state government.
  • The Executive budget proposes in 2010-11 to spend $40 million from the Environment Protection Fund on operational, employee and other costs for the state Department of Environmental Conservation and the state Office of Parks, Recreation and Historic Preservation.
  • One of the state’s biggest dedicated funds, the Dedicated Highway and Bridge Trust Fund has been siphoned so many times it’s nearly bankrupt and has to be subsidized by the General Fund. The operating expenses of the state Department of Motor Vehicles and the state Department of Transportation’s costs for snow and ice removal, bus inspections and engineering and administrative services are funded through the trust fund. Only $11.6 billion (34.9 percent) of the total amount of the fund has been spent to improve New York’s roads and bridges.

Abusing Temporary Loans

  • The state often borrows from the state’s Short Term Investment Pool (STIP) to meet short-term cash shortfalls. These loans, intended to cover episodic shortfalls, are now used to cover built-in and permanent structural deficits. For the last 10 years, the state has closed the fiscal year with an average of $1.4 billion in outstanding temporary loans, clearly illustrating the state’s failure to address chronic deficits deeply embedded within the budget.
  • The General Fund is increasingly relying on temporary loans from other funds. In December 2009, for the first time in recent history, the state closed the month with a General Fund cash deficit of $577 million prior to adjustments. In 2010-11, DOB is projecting the General Fund will have to borrow from other funds for four months in a row, starting in May.

Borrowing

  • The state also commonly uses debt to close deficits and pay for operating costs. Past borrowing for non-capital purposes now costs taxpayers $1 billion annually in debt service.
  • Over the past two years, more than $400 million was issued or is expected to be issued in new debt to replace what was intended to be pay-as-you-go capital spending. Debt service is now one of the fastest growing categories of spending in the budget.

DiNapoli recently proposed a number of fiscal reforms to address long-standing deficiencies in the state’s budget process. DiNapoli would prohibit blanket sweeps, require the Governor to identify actions to close out-year gaps, require the Executive and Legislature to identify all revenues that are available for spending, restrict the use of one-shot revenues to pay for ongoing expenses, prohibit borrowing for operating purposes and increase transparency in budget documents.

Click here for a copy of the report

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