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NEWS from the Office of the New York State Comptroller
Contact: Press Office 518-474-4015


DiNapoli: State Faces Potential Budget Gaps

Spending Increases, Tax Cuts and Temporary Resources Add To Gaps in Future Years

July 22, 2016

New York state faces potential budget gaps in future years, according to an analysis of the state’s Financial Plan released today by State Comptroller Thomas P. DiNapoli. The budget gaps result from spending increases and tax reductions enacted this year, and the use of temporary resources to pay for recurring costs.

“New York is facing the prospect of outyear budget gaps,” DiNapoli said. “New York’s rainy day reserves are at low levels compared to many states and the use of temporary resources to meet recurring expenses contributes to the state’s potential outyear budget shortfalls. More must be done to promote long-term structural balance and ensure that taxpayers’ dollars are used cost-effectively.”

The Division of the Budget’s (DOB) outyear projections again include an assumption that annual spending growth from State Operating Funds will not exceed 2 percent. For the first time since DOB started using this presentation a few years ago, the Financial Plan shows that even if State Operating Funds spending growth is held to 2 percent, outyear gaps will occur beginning in SFY 2018-19. Based on DOB’s projections, DiNapoli’s report estimates the state faces potential budget gaps averaging just less than $5 billion annually over the three fiscal years starting in state fiscal year (SFY) 2017-18. Total potential shortfalls over the four-year Financial Plan period are nearly double those reflected in the SFY 2016-17 Executive Budget Financial Plan.  

School aid is projected to increase 4.8 percent this fiscal year and an average 5.3 percent over the remaining three fiscal years in the Financial Plan period. Medicaid spending is expected to rise 2.4 percent this year, then by an average 4.5 percent the following three years. Spending from State Operating Funds is projected to increase 2 percent this year, but after adjusting for timing of certain payments, the report estimates such spending growth at 3.6 percent.  

The Enacted Budget Financial Plan relies on $5.9 billion in temporary or non-recurring resources, excluding federal aid for disaster assistance. Temporary or non-recurring resources in this year’s budget include more than $2.3 billion in revenue from a top personal income tax (PIT) rate of 8.82 percent on certain higher-income taxpayers that is scheduled to expire at the end of 2017. Another $1.6 billion is from prepayments for purposes including debt service, workers’ compensation and personal income tax refunds. Other temporary or one-time resources are from the State Insurance Fund, Mortgage Insurance Fund and other funds.

All Funds PIT collections in the first three months of SFY 2016-17 were nearly $600 million lower than projected in the Enacted Budget Financial Plan issued in May and nearly $1.2 billion lower than February projections. The Financial Plan projects tax receipts this year will increase by 3.3 percent, down from the previous year’s 5.1 percent.

The combined balance in the state’s two main statutory reserve funds (Tax Stabilization Reserve and Rainy Day Reserve) as of March 31, 2016, was unchanged from the previous year and is expected to remain at its current $1.8 billion through this fiscal year. The General Fund balance as of that date included $7 billion in unrestricted reserves that largely came from monetary settlements. These unrestricted reserves are projected to decline to $1.4 billion by SFY 2019-20, as these monies are used for various purposes, including to support spending from the Capital Projects Fund as part of a plan to delay debt issuance, to support spending from the Dedicated Infrastructure Investment Fund and for budget relief. Of more than $8 billion in settlement resources received in the previous two fiscal years, $665 million has not yet been appropriated or designated for use.

DiNapoli’s report also notes:

  • DOB projects that statutory state-supported debt capacity will decline from $4.9 billion in SFY 2015-16 to $105 million in SFY 2019-20.
  • The largest share of projected capital financing over the next five years, at more than 51 percent of the total, is “backdoor” public authority borrowing which is not approved by voters.
  • Annual state-funded debt service is projected to increase 23.1 percent from the current year through the end of the Capital Plan period, reaching nearly $8.5 billion in SFY 2020-21.
  • Total All Funds disbursements are projected to increase $5.4 billion or 3.6 percent, to $156.1 billion, in SFY 2016-17. While the Financial Plan presents projected All Funds spending as $148.2 billion, this figure excludes certain federal funding for health care and disaster-related aid.
  •   Total receipts, including miscellaneous receipts and federal aid, are projected to decrease by $919 million or 0.6 percent this year, largely attributable to an expected reduction in monetary settlement receipts and a smaller transfer from the State Insurance Fund.
  •    The Enacted Budget Capital Plan projects spending from capital projects funds to total nearly $63.5 billion over the next five years, an increase of just under $2.8 billion from the Executive Budget, and an increase of nearly $7 billion over the previous year’s Enacted Budget Capital Plan (SFY 2015-16 through SFY 2019-20).