New York state’s fiscal position has improved, but the state may face increasing budgetary challenges in coming years as revenue growth is expected to slow and billions of dollars in settlement money are spent, according to an analysis of the $154.6 billion Executive Budget released today by State Comptroller Thomas P. DiNapoli. This report, prepared each year following the release of the Executive Budget, provides information to assist in the evaluation of the 2016-17 proposal.

“The state's fiscal position is much improved because of actions by the Governor and the Legislature, legal settlements and robust tax revenues this year,” DiNapoli said. “Yet structural budget challenges remain, and we cannot count on extraordinary one-time windfalls to pay our bills down the road. The Executive Budget reflects better times and proposes new investments in key areas such as infrastructure, but greater clarity is needed on how the state will pay for it all.”

DiNapoli praised the Governor’s reform proposals, including a constitutional amendment to authorize the forfeiture of pension rights for public officials who are convicted of crimes related to his or her public office, and campaign finance reforms. These reforms include a system of voluntary public campaign financing for all state-level candidates and reduced limits on campaign contributions.

Fiscal Position

Growth in tax collections and lower-than-anticipated spending through the first three quarters of state fiscal year (SFY) 2015-16 have helped bolster the state’s fiscal position. In addition, New York received more than $8 billion in monetary settlements last year and this year, with most of these resources allocated either in the last enacted budget or in the proposed budget.

The Division of the Budget (DOB) projects that growth in tax receipts will slow from 5.7 percent this fiscal year to 3.4 percent next fiscal year. By March 31, 2017, the General Fund balance is projected to be $3.2 billion – down from an end-of-year peak of $7.3 billion two years earlier. The drop will come as settlement revenues are not anticipated to continue as they have over the last three years.

DiNapoli’s office estimates that DOB projections of receipts and disbursements reflect potential budget gaps of $1.1 billion in SFY 2017-18, $3.1 billion in SFY 2018-19, and $3.6 billion in SFY 2019-20.

Spending proposals

The budget raises the prospect of multiyear spending in certain areas with limited detail on specific funding sources. For example, budget bills would statutorily commit the state to fund approximately $8.3 billion in capital costs for the Metropolitan Transportation Authority, but do not provide any details regarding financing beyond $1 billion appropriated as part of the current year’s budget.

Similarly, while the budget proposes $2 billion in capital appropriations for homeless housing, an announced $20 billion affordable housing and supportive services initiative does not appear to have funding resources allocated or fully identified.

The proposed budget would increase the Thruway Authority’s dependence on state resources in the coming years while leaving unanswered questions regarding financing of the Thruway’s long-term capital and operational needs, including those for the Tappan Zee Bridge replacement. The budget assumes $232 million in resources from various public authorities to support the state’s overall proposed spending plan.

The Executive’s proposed Financial Plan estimates that All Funds disbursements would rise by 1.6 percent, to $154.6 billion. DOB projects spending from State Operating Funds, which excludes capital spending, will rise by 1.7 percent in SFY 2016-17. After adjusting for changes in the timing of certain debt payments, the Office of the State Comptroller estimates that such spending will grow by a projected 2.8 percent.

Debt

DiNapoli’s report also finds New York state will continue to rely heavily on debt and bear the weight of billions of dollars in borrowing in the next few years.

The proposed budget projects that state-supported debt outstanding will increase by nearly $10 billion, or 19.6 percent, over five years to $60.8 billion in SFY 2020-21. Other borrowing that is not considered state-supported debt would add further to the overall debt burden. State-funded debt outstanding is expected to reach $70.8 billion by the end of SFY 2020-21, an increase of 13.2 percent over the same period. 

DOB projects that remaining capacity under the state’s statutory debt limit will drop to $189 million as of March 31, 2020 in the Updated Financial Plan. State-supported debt service is estimated to rise to $7.4 billion by SFY 2020-21, an increase of 37 percent from SFY 2016-17, while state-funded debt service is expected to increase to $8.5 billion, a rise of more than 25 percent over the same period.

Among other significant measures, the SFY 2016-17 Executive Budget:

• Proposes a new Design and Construction Corporation with significant authority to control certain public works projects. The proposal would eliminate certain oversight provisions and diminish independent checks and balances.
• Proposes tax changes that would reduce state revenues by a projected $608 million as of SFY 2019-20, excluding changes to the School Tax Relief program.
• Relies on more than $1 billion in proposed new one-shot and temporary resources in the coming year.
• Increases school aid by $991 million or 4.3 percent in the coming school year, compared to the 3.9 percent increase that would be allowed under a statutory cap linked to growth of personal income in the state.
• Projects $22.9 billion in state-funded Medicaid spending, an increase of $197 million or 0.9 percent from the current year. The budget also includes $484 million to operate the state’s health insurance exchange, an increase of nearly 25 percent.
• Continues the use of lump-sum appropriations, where planned uses of state resources are not specifically defined, including $200 million for upstate revitalization initiatives.
• Proposes authorization for the Metropolitan Transportation Authority to engage in public-private partnerships, for a wide variety of purposes. The proposal could allow public or private entities to have extensive powers over transportation and other facilities, including the establishment and collection of fares, tolls, taxes, and other charges.
• Proposes to make permanent provisions related to the state’s allocation of private activity bond capacity. It also would require local issuers, including New York City, to receive approval from the Public Authorities Control Board before issuing such bonds and would require that any local reallocation of the cap receive prior approval from the Department of Economic Development.

DiNapoli’s report also notes the Governor announced a phased-in minimum wage increase for about 38,000 state employees – 28,000 State University of New York (SUNY) and 10,000 non-SUNY State employees, at a projected cost of approximately $48.8 million per year when fully phased in. The minimum wage announcement applied to SUNY employees but not to City University of New York employees.

Additionally, the report finds a growing portion of the projected $3.6 billion in Dedicated Highway and Bridge Trust Fund spending in SFY 2016-17 will be diverted to pay for state operating costs (40.8 percent) and debt service (39.3 percent). Projected capital spending of $714 million represents just one-fifth of total fund spending. 

Read the report, or by go to:  http://www.osc.state.ny.us/reports/budget/2016/review_of_executive_budget_2016.pdf