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March 7, 2007

Comptroller DiNapoli: Executive Budget is
a Step Towards Reform, but Cautions that
Spending Increases are “Unsustainable”

Rate of Spending Grows Nearly Twice as Fast as Revenues in $120.6 Billion Plan – Outpaces Inflation, Leads to Three-Year Combined Gap of $13 Billion

The 2007-08 Executive Budget takes a significant step toward budget reform by providing more detail on spending, revenues, debt and impacts on local governments around the state; simplifying appropriations bills; and proposing to increase reserves to 5 percent of the General Fund, according to a report issued today by State Comptroller Thomas P. DiNapoli.

However, the report also finds that the $120.6 billion budget calls for increasing spending at two-and-one-half times the projected rate of inflation – $7.1 billion, or 6.3 percent, over the current year, with State Funds spending set to increase $6 billion, or 7.8 percent, over 2006-07 and ultimately leading to an estimated $13 billon three-year gap. Moreover, there is approximately $2.7 billion in off-budget capital spending that if accounted will push year-to-year spending growth to nearly 9 percent. The report also identifies $1.2 billion in financial risks for 2007-08 and an additional $5 billion in out-year risks to the financial plan.

“With more in-depth information on current and future spending and increases to reserves, this budget takes a significant step toward much-needed reforms in the budgeting process,” DiNapoli said. “By streamlining the language of the appropriations bills, the Governor is addressing a matter that has in recent years slowed negotiations with the Legislature and has been one of the stumbling blocks to attaining an on-time budget.

“But spending is still increasing at an unsustainable rate, almost two times faster than revenues, and the result is a three-year budget gap of $13 billion,” DiNapoli said.

The report finds:

  • Year-to-year growth. The $120.6 billion budget proposal represents an increase of $7.1 billion, or 6.3 percent, over the current fiscal year. This figure does not account for $2.7 billion in off-budget capital spending, which would push the 2007-08 increase to nearly 8.8 percent. General Fund spending for 2007-08 increases $2.2 billion – 4.2 percent – over the current fiscal year.
  • Out-year gaps total $13 billion. Although the budget would close a $1.6 billion gap for the 2007-08 fiscal year, in part with a surplus from 2006-07, the state will continue to face persistent structural imbalances totaling $14.3 billion through 2010-11 and would realize only a $1.3 billion reduction in the deficit over the next three fiscal years. While the Executive recommends applying projected surpluses to close these gaps, the underlying cause of the gaps – burdensome spending – is not addressed.
  • Spending increases faster than revenues and inflation. Spending is largely to blame for the multi-billion dollar gaps, increasing 24.8 percent by 2010-11 – nearly two times the rate of the increase in revenues (13.5 percent) and more than two-and-one-half times the projected rate of inflation for the period.
  • One-shots live on, although not as much as in past years. The Executive Budget continues to rely on non-recurring revenues, which total $1.1 billion for 2007-08 and bring the two-year total to $4.1 billion. This continued reliance on one-shots also contributes to the state’s recurring structural deficit.
  • More debt for capital projects. According to the Executive’s Five-Year Capital Program and Financing Plan, the state would continue to substantially rely on debt rather than pay-as-you-go spending for capital projects. As a result, outstanding state debt would increase to $65.6 billion by the end of the 2011-12 fiscal year, a 27.1 percent increase from the current fiscal year
  • Borrowing subject to voter approval. The Executive proposes a General Obligation Bond Act, rather than backdoor borrowing that has been more typical in recent years, to support a new stem cell research initiative. This $1.5 billion in Constitutional debt will give voters a chance to weigh in on the state’s borrowing needs and priorities. Furthermore, although the Proposed Budget does not include a comprehensive debt reform package, it does include language that would ban any future issuance of debt supported solely by state local assistance payments not previously authorized by the Legislature.
  • Good news for some local governments, bad news for others. Some local governments, particularly upstate, could experience a big reduction in property taxes due to the Executive proposal to provide $1.6 billion in aid to localities to be used for property tax relief. Most of this money would go to local school districts. However, 81 municipalities would lose all state revenue sharing funds.
  • Improvements over previous years
    • Budget presentation. The budget presentation provides more in-depth financial plan information – lengthier out-year receipt and disbursement projections, greater detail on various spending categories by fund type, enhanced data on debt service, debt affordability and debt portfolio financing options, and more details on how the Budget would effect local governments across the state.
    • Less extraneous language. The Executive appears to have made a concerted effort to reduce the amount of extraneous language in the appropriation bills. This may eliminate a previously contentious part of budget deliberations and may make an on-time budget a more attainable goal.
    • Improved fiscal practices. In an effort to improve fiscal management practices, the Governor recommends increasing reserves to a level equal to five percent of the General Fund.

“With reform taking hold in Albany, the Governor and the Legislature must not lose momentum. The Governor has stated that this budget is the first in a multi-year strategy to restore structural balance and has also called for placing $575 million in additional revenue into an operating reserve fund. We urge the Governor and the Legislature to stand firm and begin this multi-year effort now by taking a more prudent approach to managing state finances,” DiNapoli said. “We need to save for the future, execute long-term planning so that revenues better match spending and cultivate a culture of fiscal discipline not only in the Executive Budget but also in the Enacted Budget.”

Click here for a copy of the report.



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