DiNapoli's Executive Budget Report Cites
Concerns with Debt and Future Spending
The proposed Executive Budget closes a $4.4 billion budget gap in fiscal year 2008-09 and adjusts spending in response to growing signs that the economy is in trouble, according to a report issued today by State Comptroller Thomas P. DiNapoli. DiNapoli praised the Governor for the quick start to the budget process and for increased transparency in the Executive Budget documents. However, DiNapoli said the proposed budget relies too heavily on debt, makes revenue assumptions that may not materialize and could commit the State to future spending that is unsustainable.
“We’re facing very uncertain economic times,” DiNapoli said. “If things continue to decline in the financial industry, New York will get hit even harder. The Governor made some difficult choices, but there will have to be more. We should only spend within the parameters of what the State can afford. When you spend more than you take in, something has got to give.
“The Executive Budget relies heavily on debt and would increase the state’s debt payments by nearly 50 percent over the next five years. And several of the new revenue streams identified in the proposed budget — including a tax on illegal drugs and conversion of not-for-profit health insurers to for-profit status — may not be realistic. The Governor and the Legislature should make sure this week’s revenue consensus process includes only revenues that are likely to materialize.”
DiNapoli’s report finds:
- Significant Growth in Debt: State-funded debt increases 24 percent to $67.3 billion over the next five years in the proposed budget. As a result, total debt service — the amount included annually to pay for the cost of debt — will become the fastest growing component of the budget. It is projected to increase by 48.3 percent from $5 billion to $7.5 billion in five years.
- Out-Year Spending Increases Significantly Faster than Revenues and Personal Income: On average, General Fund spending is projected to increase 7.4 percent annually between 2008-09 and 2011-12, while revenues are only expected to grow by 4.7 percent annually and personal income by 5 percent.
- Off-Budget Spending: The $124.3 billion proposed budget represents an increase of $5.9 billion or 5 percent over 2007-08 on an All Funds basis. This figure does not account for $2.5 billion in off-budget spending by the state’s public authorities, increasing the state’s total spending to $126.8 billion. For instance, $1.1 billion in new statewide economic development initiatives over a five-year period is off-budget and is not counted in the Financial or Capital Plans.
- Out-Year Deficits Continue: While the proposed budget reduces out-year gaps, the state will face shortfalls totaling $3.6 billion in 2009-10, $6.1 billion in 2010-11 and $7.2 billion in 2011-12. These gaps remain because the underlying reason for the gaps — spending more than the state is taking in — is not addressed. DiNapoli urged the Executive and Legislature to enact a final budget that does not increase out-year gaps and identifies how these gaps will be addressed.
- Public Authority Debt: Debt caps for certain public authorities are increased by $5.6 billion or 19.6 percent. Total sale of new debt by public authorities was $12.2 billion in 2007-08 and is projected to be $15.1 billion in 2008-09 — a 24 percent increase.
- Capital Projects: The proposed budget includes approximately $11 billion in new capital spending, including $9.3 billion for SUNY and CUNY projects, $900 million for economic development, $355 million for racing proposals, much of which is financed through debt issued by the state’s public authorities without voter approval. The $11 billion does not include new transportation initiatives from the State Department of Transportation and the Metropolitan Transit Authority.
- Risks: The proposed budget closes a $4.4 billion deficit and allows for $416 million in new spending by using $1.5 billion in nonrecurring resources, including $200 million from the Environmental Protection Fund, and $1.1 billion in new or increased taxes and fees. However, the report identifies risks of $2.6 billion to the Financial Plan, including $676 million in proposals that have been rejected by the Legislature in previous years and new revenue proposals, such as a new tax on illegal drugs, which may not materialize.
- Privatization of the Lottery: The proposal is too vague for analysis and further details have not yet been released. When those details are available, DiNapoli’s office will evaluate the potential effect on state finances.
- Positive Changes in Budget Process: This year’s budget was developed in a much more public way than in previous years. The new process includes consensus discussions on revenues in November, as well as statewide budget hearings. The proposed budget also contains more information in the Financial Plan than in past Executive proposals.
In January, DiNapoli urged state lawmakers to enact a new debt cap after his office released a debt study, which indicated that State-funded debt grew to nearly $51 billion in the last fiscal year from $39 billion in 2002-03, a 31 percent increase. His proposal would place all new and existing outstanding State-funded debt under a cap, and limit State-funded debt to 5 percent of New York personal income. The cap would be phased in over a nine-year period and prohibit debt for any purpose other than capital projects.
Click here for a copy of the report.