State of Undress: Governor Cuomo and New York’s Budget Crisis

Sarah Laskow | January 6th, 2011

Gov. Andrew Cuomo

Gov. Andrew Cuomo delivered his first State of the State address Wednesday, and although, as he insisted, it was not a budget proposal and although it included few dollar figures, it was a speech about money, or, more specifically, about the lack thereof.

“The state of New York spends too much money,” Cuomo said. “It is that blunt, and it is that simple.”

In the past three years, New York’s budget problems often have been lumped in with the general fiscal distress brought on by the recession across the country. But the state’s budget crisis, the first challenge that Cuomo must take on, cannot only be blamed on the recession. It is also a product of New York’s spending habits and the quick-fix ideas used to mask them.

In its most barebones formulation, New York’s budget crisis is simple. Averaged out over the past two and half decades, the state’s spending has grown faster than its inhabitants’ incomes. The end result is that the state’s revenues, which primarily come from taxing personal and corporate income, come in below its expenditures.

“The recession just made an underlying structural problem even more obvious and accelerated the trend,” said Carol Kellermann, president of the fiscal watchdog group Citizens Budget Commission. “This kind of the gradual multi-decade long build up of expenses exceeding revenues, I think, is unusual. And there’s a relatively widespread acknowledgement that we can’t tax our way our way out of it, which is what we’ve done in the past.”

The projected budget gap for next year is more than $9 billion, perhaps even $10 billion. That’s a lot of money, but for the past decade, New York has dealt with this same problem every single year. The issue now is, in part, that lawmakers have run out of options for closing the gap. In 2001, for instance, they tapped into the small surplus the state had accumulated during the cush years of the 1990s, spending nearly $3.7 billion of a $4.2 billion reserve. In 2003, they instituted a temporary, three-year tax that tapped the highest earners in the state. They began shuffling money around among the government’s myriad accounts, sweeping money raised through a specific fee for a specific program — cigarette taxes meant to fund health programs, for instance — into the general fund. They also relied, increasingly, on one-time fixes that patched up one year’s budget without addressing the underlying disparity.

This past year, for instance, federal stimulus dollars helped shore up the state’s Medicaid budget. But next year, those funds will have disappeared, and New York’s overall fiscal situation will not differ too much from its situation in 2008.

“We never actually cut spending in the past three years, unlike some states,” said the Manhattan Institute’s E.J. McMahon.

Even before other states starting cutting programs to make ends meets, New York had one of the highest per capita spending rates in the entire country: In fiscal year 2007, for instance, it ranked 5th in the nation, at $7,846 per head, according to an analysis by the Tax Foundation.

This year, the state’s spending will total more than $137 billion. That total can be roughly divided into three categories. State and federal capital funds — funds intended primary for infrastructure projects — accounted for about 6% of the budget. About a third of the state’s operating funds ($47.6 billion) came from the federal government, in one form or another. The remainder of the budget is made up of state operating funds.

In the State of the State, Cuomo avoided saying explicitly that this year’s budget would require cutting programs; he focused instead on the more vague and purportedly inspiring idea that the solution to the state’s money trouble could be tackled by rethinking government programs more holistically.

But in order for the state’s revenue and expenditures to come in line with each other — without raising taxes — the governor will have to make cuts. And he will have to make cuts to the biggest and most fiscally irrational government programs: school aid, Medicaid, and the state workforce. These programs eat up the biggest chunks of the budget, and over the past ten years, they have also been the fastest growing. The Citizens Budget Commission calls them the “Big 3,” and this year, lawmakers will have to wrangle with them, according to Kellermann.

“There’s no way around that any more. You can’t get your arms around a $10 billion deficit by cutting discretionary programs that don’t have that much money in them,” she said.

For Medicaid, at least, Cuomo has a plan: His Medicaid redesign team will gather stakeholders together and identify Medicaid reforms that make sense for the program but also save money, he said Wednesday.

It’s still not clear, however, how Cuomo will close the deficit this year. “He has said repeatedly that he’s absolutely positively going to close a budget gap without tax increases and borrowing,” McMahon said Wednesday. “I don’t know any more about how he’s going to do that today than I did yesterday.”

The budget process will begin in earnest once Cuomo presents his plan to the legislature. The legislature will then have the opportunity to reduce funding for or eliminate each line of Cuomo’s proposed budget. The legislature can also add spending items. Cuomo has the power to veto any line of the legislature’s version of the budget; a two-thirds majority can override his veto.

New York’s fiscal year begins unusually early, on April 1. The state has a terrible track record for passing budgets on time, however. When in 2005 the budget bill made it across the governor’s desk before the new fiscal year began, it was the first time in 21 years the budget had been finished on schedule.