Comptroller’s Report on the FY 05-06 Executive Budget:
State Could Face Gap of as much as $11 Billion

Although the Governor’s 2005-06 budget proposal is balanced, the plan contains an estimated $4.6 billion in financial risks and cumulative out-year budget gaps ranging from $5 billon to as much as $11 billion by the end of 2007-08, according to a report on the Executive Budget issued today by State Comptroller Alan G. Hevesi.

The Governor’s plan includes many actions that have been previously rejected by the Legislature. If the Legislature again rejects these proposals, the out-year budget gaps could grow to $11 billion by the end of 2007-08. The gap projections include spending estimates for a proposed full takeover of Medicaid administration with a cap on local costs, but do not reflect spending sufficient to comply with the 2003 Campaign for Fiscal Equity court decision mandating additional funding for education.

The report also noted that the Governor’s plan projects budget growth of 8.8 and 9.1 percent over the next two fiscal years, and that State debt will grow from $49 billion at the end of this fiscal year to $54.6 billion in just five years.

“The Governor’s plan pushes far too many problems into the future, instead of providing solutions today. Unfortunately, these problems will not be solved on their own and lawmakers will just have to deal with them later,” Hevesi said. “While debt remains a major issue and is projected to increase by 11 percent in the next five years, there is no plan to impose the fiscal discipline needed to structurally balance the State’s finances in the future. Clearly the State is facing difficult challenges ahead, and taxpayers need to know how the State plans to address them.”

Major points in the Executive Budget include:

Lack of support for Education Following Campaign for Fiscal Equity Ruling. Although the Court of Appeals ordered the State to provide the New York City schools with an additional $5.6 billion for operating expenses and $9.2 billion for capital spending in a multi-year plan, the Executive Budget ignores the court order and provides only $325 million, statewide, in tenuous video lottery terminal revenues for operating expenses and allows further borrowing. Only $195 million of this amount is earmarked for New York City. This is less than 15 percent of the support required in year one of the Court’s timetable to meet the court-mandated improvements for a sound basic education for New York City.

Medicaid relief. The State’s Medicaid program provides needed health care services to four million New Yorkers. The Governor’s proposal to rein in the escalating costs of the program caps local costs and provides full State administrative takeover by 2008. The proposal depends on the Legislature adopting various cost-containment measures that they have rejected in the past.

Pensions. For the second year running, the Executive proposes to not pay in full the legally required amount to the State’s pension fund. The Comptroller, who is constitutionally responsible for the Fund’s solvency, has objected to this year’s $367 million underfunding on constitutional grounds and will insist on full payment in light of the fact that pension contributions are 10 percent lower for FY 06 than for FY 05.

Potential HCRA shortfall. If the State loses current litigation or fails to resolve a dispute over public financial disclosures related to conversion of Empire Blue Cross to a commercial insurer, health care spending could face a shortfall that exceeds $1 billion.

Imprudent borrowing. The proposed budget includes a refinancing and restructuring plan for approximately $3 billion in current outstanding Dedicated Bridge and Highway Trust Fund bonds that will result in savings now, but adds a net additional cost of $2.1 billion over 30 years.

Potential loss of federal funding. Under President Bush’s proposed 2006 budget, New York could lose billions in federal funding associated with reductions in Medicaid and Medicare, education, transportation and labor spending, posing many risks to the State financial plan. President Bush’s Medicaid proposal alone could jeopardize $7.6 billion in federal funds for New York over the next ten years.

Public authorities. The Executive Budget provides $2.9 billion in new appropriations to 11 public authorities, up from $787 million in 2004-05.

One-shot revenues. The 2005-06 budget proposal includes $3.6 billion in non-recurring resources. This creates a two-year total of non-recurring resources of nearly $6 billion.

Previously rejected proposals. The budget again includes many proposals that have been previously rejected by the Legislature adding a risk of up to $2.3 billion to the State’s financial plan.
The budget proposal totals $105.2 billion, an increase of $4.0 billion or 3.9 percent from 2004-05.

“This year’s proposal once again attempts to manage, rather than solve the basic problems that keep the State in a persistent structural imbalance,” Hevesi said. “Those problems, including the growing out-year gaps, increased reliance on borrowing, and new commitments such as the Medicaid takeover, will require multi-year fiscal discipline, but it is unclear how this will emerge since recent court decisions have added new uncertainties that could further jeopardize the adoption of a timely budget and consensus on overdue budget reforms.”

Hevesi noted that the Executive, Senate, and Assembly have all put forward budget reform plans for 2005 and have initiated a series of public meetings to provide greater openness to the budget process. He also noted that while the Executive has administratively implemented some budget reforms recommended by the Comptroller, such as providing additional financial information on a quarterly basis and moving HCRA spending into the Executive Budget, statutory and constitutional reforms of the budget process are still needed.