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May 14, 2009

DiNapoli Calls for Reforms to State Budget Process

Out-Year Budget Gaps Grow as Spending Spirals Upward

New York State Comptroller Thomas P. DiNapoli today called for major reforms to the state’s fiscal practices and budget process. He noted that although the $131.9 billion budget closed a historic $17.9 billion gap, it did so by using more than $11 billion in temporary federal stimulus funds and temporary new taxes, masking the state’s serious structural imbalance.

In his report on the Enacted 2009-2010 State Budget, DiNapoli noted that spending will rise from $121.6 billion in 2008-09 to a projected $145 billion by 2012-13. He said the state’s projected three-year budget gap will be nearly $25 billion. DiNapoli said these gaps could grow larger if the economic downturn is prolonged. He pointed out that the Governor’s initial budget proposal relied more on spending cuts than new revenues, but that mix was reversed during the legislative process, creating an unsustainable level of spending in future years.

“This was a difficult budget; New Yorkers get that,” DiNapoli said. “But this budget falls short of what New York desperately needs. This is a buy-time budget; tough decisions on spending have been postponed.

“New York families have readjusted their spending habits to meet the economic crisis. New York’s government should do the same. Instead of aligning spending with revenues over the long-term, the budget includes billions in spending we can’t sustain in future years. Instead of using at least some of the discretionary federal stimulus funds for economic development and budget restructuring, the stimulus funds and other temporary resources were used as a short-term fix.

“All this happened in the shadows. The public never had a chance to offer input until after the deal was done. There’s no reason to hide the fiscal realities. New Yorkers can handle the truth. Let’s reform the process.”

DiNapoli said Governor Paterson’s spending cap proposal should serve as a starting point for discussions on how to control spending in future budgets. DiNapoli’s report includes several budget reform recommendations to help address the systemic problems in the state’s budget process. DiNapoli’s recommendations include to:

  • Change the beginning of the fiscal year to July 1 to allow sufficient time for public input and decision making, and to provide a full picture of available revenues. DiNapoli said adjustments could be made to accommodate school districts’ fiscal years;
  • Require a binding consensus revenue forecast and also require the Governor to submit a two-year budget to help eliminate out-year deficits;
  • Require more frequent updates to the state’s Financial Plan and require the Legislature to hold public conference committees to provide the public with greater information during the budget process;
  • Plan for economic downturns by setting aside excess revenue during good economic times and increasing pay-as-you-go spending. In addition, DiNapoli recommends increasing the cap on the Rainy Day reserve fund from 3 percent to at least 5 percent;
  • Require non-recurring revenues to finance non-recurring spending, such as emergency or capital expenditures. The use of one-shot revenues to finance recurring spending has exacerbated the state’s chronic structural budget imbalance;
  • Identify in the final budget how much each state agency and program received to maintain current services and new programs or spending reductions. These appropriations would be connected to actual expenditures to give the public a better understanding of actual spending;
  • Replace back-door borrowing with voter-approved debt to be issued by the State Comptroller and establish a new debt cap that would place all new and existing outstanding State-funded debt under the cap; and
  • Develop a plan to streamline public authorities and improve oversight measures.

The $131.9 billion budget is $10.4 billion or 8.5 percent higher than last fiscal year. Stimulus funds, new tax revenues and other one-time revenues enabled General Fund spending to remain virtually unchanged at $54.9 billion, an increase of 0.6 percent. The Executive’s financial plan states that General Fund spending will increase to $72 billion in fiscal year 2012-13, an increase of more than $17 billion or 31 percent within three years. All Funds spending will increase to $145 billion in fiscal year 2012-13, a growth of more than $13 billion or nearly 10 percent. The Executive projects a three-year gap of nearly $25 billion (see chart below), which could be even higher given the poor performance of the economy and New York’s propensity to spend more than the state can afford.

*Chart is in millions of dollars

Among other findings of DiNapoli’s Enacted 2009-2010 Budget Report:

  • Increased Reliance on Debt: Despite the fact that the state is approaching its statutory debt limit, the budget increases public authority debt caps by $3.4 billion, an increase of 8.4 percent. The capital plan projects the state will exceed its debt cap by 2012-13. Debt service, the cost to repay debt, remains one of the fastest growing spending categories and is expected to approach $7.8 billion by 2013-14.
  • Positive Actions in the Budget: The final budget includes measures to control costs of the state’s Medicaid program, creating incentives for increased primary and preventive care services as opposed to inpatient care as well as providing steps to increase alternatives to nursing home care in the future were adopted.

Click here to view the report.



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