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February 15, 2011


DiNapoli: Executive Budget Starts State on Path to Long-Term Budget Balance

Risks Include Unspecified Savings

The state fiscal year 2011-12 Executive Budget begins to address the state's structural deficit by bringing recurring expenses into better alignment with recurring revenues, according to State Comptroller Thomas P. DiNapoli's analysis of the Governor's budget proposal. However, DiNapoli cautioned the proposal relies on more than $4 billion in yet-to-be specified actions.

"Governor Cuomo has started the state on a path to attain long-term budget balance," DiNapoli said. "The Executive Budget proposal makes progress toward finally reversing the state's practice of spending more money than it takes in. And it does this without significant tax increases and without deficit borrowing. For the past four years, I have called for the state to live within its means. This proposal is a solid step in that direction. But the plan includes more than $4 billion in placeholder savings. Without knowing the details of many of the deficit-closing actions, it is difficult to determine if they will produce the projected savings. With uncertainty comes risk."

The Governor's budget proposal closes a $10 billion General Fund deficit in 2011-12 and reduces projected cumulative out-year deficits through 2014-15 from $64.6 billion to $9.2 billion, with recurring savings representing 85 percent of the proposed actions over the next four years. The proposed budget is also less reliant on temporary and non-recurring actions than in previous years. The budget includes $7.7 billion in temporary and non-recurring actions in 2011-12, a 54 percent decline from $16.7 billion in 2010-11. By 2014-15, these sources are projected to decline to $400 million.

DiNapoli's report identified several areas of risk in the proposed budget that could make achieving the level of revenue or savings expected challenging. These risks include:

  • Undefined Savings Actions: Large savings targets, including $2.85 billion in Medicaid and $1.4 billion in state operations, are proposed without sufficient details identifying where and how the savings will be achieved. As a result, the impact of these savings on various health care services, government services and employment cannot yet be determined. Financial risks to Medicaid include identifying savings that are in compliance with current federal rules and implementing them in the same year. Future spending would be limited to the rate of medical inflation, but the mechanism for achieving this is unclear.
  • Optimistic Tax Receipts Projections: The current fiscal year's Enacted Budget Financial Plan overestimated personal income tax (PIT) receipts by more than $1 billion because growth fell far short of the 6.2 percent projected. PIT final collections have been below initial projections every year annually since 2005-06. The 2011-12 Executive Budget estimates PIT collections will grow 7.4 percent, including 12 percent growth in estimated payments, which could be well above actual growth.
  • Uncertain Revenues: There are a number of revenue sources that may not produce the anticipated fiscal benefit in 2011-12, including:
    • cigarette taxes from sales by Native Americans;
    • proceeds from not-for-profit insurance companies converting to for-profit companies;
    • voluntary transfers of funds from unspecified public authorities;
    • sweeps from unspecified funds;
    • increased revenue from tax compliance measures;
    • expansion of the state lottery, including removing Quick Draw restrictions; and
    • abandoned property revenue.
  • A Vulnerable Economy: While the economy may be improving, not all areas are showing growth. The unemployment rate is expected to remain high, the housing market weak and, while consumer spending has increased recently, consumer sentiment is expected to continue to be low over the next two years. A further slowdown could quickly translate into less than anticipated revenues or increased spending.

    Additional items of note in the Executive Budget include:

    • To develop recommendations to achieve the savings targets included in the proposed Budget, the Governor has proposed a Medicaid Redesign Team, a Mandate Relief Redesign Team, a Spending and Government Efficiency Commission, and a task force to recommend correctional facility closures. The teams will begin reporting by March 1, 2010.
    • The Governor proposes several measures to contain out-year spending growth, including plans to limit school aid growth to the multi-year average of growth in personal income, and to limit future state-funded Medicaid growth to the annual average long-term change in the medical component of the Consumer Price Index.
    • The Executive proposes to create or restructure several grant programs to be competitively or performance based in many substantive areas including education, local governments, economic development and energy.
    • The Executive continues to use debt, although in a more limited way than in previous years, to narrow the General Fund gap. For example, $200 million in capital spending for 2011-12 that was planned to be financed with current resources is instead being financed with bonds. The Executive is also proposing to issue $100 million in bonds to partially finance the Metropolitan Transportation Authority (MTA) capital plan. These bond proceeds would replace $100 million that would otherwise have been financed with MTA current resources (PAYGO).
    • The Division of Budget increased the projection for PIT revenues for the last two months of the current fiscal year even though revenue collections for most of the year were below Financial Plan projections. These estimates could be overly optimistic.

    Click here to view DiNapoli's report on the Executive Budget.


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