State Budget Update — Good News, Bad News

Wednesday, April 29th, 2009 at 3:17 pm by

New York State government is routinely criticized for being dysfunctional and short on transparency.  But there are ways in which our state government is improving.  Beginning in the last years of the Pataki Administration, the Governor’s Budget Division has been releasing much more information on the state of the state’s finances.

Yesterday’s 526-page report on the enacted state budget is an example.  It is a “good news, bad news” document.

The good news:  The state closed a combined 2008-09 and 2009-10 structural deficit of $20.1 billion.  It was the largest gap in state history, equivalent to 37 percent of General Fund revenues.

Also, so far the budget appears to remain in balance.  One might presume that less than one month into the fiscal year, that would be a safe bet.  But there had been worries that April 15 tax returns might reveal further erosion in revenues.  The New York Times reports another milepost will come June 15, when quarterly personal and corporate tax bills are due.

More good news, at least for the time being:  Because the state has so far used only about one-half its federal stimulus aid, and because some of its other gap closing actions have recurring benefit, the projected state deficit for next year (2010-11) is estimated to be “only” $2.2 billion.  State leaders have had ample practice in closing gaps of this magnitude.

The bad news:  In effect the state has built itself a budget cliff to fall from in two or three years, unless there is a dramatic turnaround in the state and national economies.

The federal stimulus funds are expected to be used-up by the end of 2010-11, and the increase in personal income tax rates for upper income New Yorkers is due to expire at the end of 2011.  Consequently, future budget gaps are projected to spike back up to $8.8 billion in 2011-12, and to $13.7 billion  in 2012-13.

In a statement, Governor Paterson said, “Federal stimulus funding provided the state a soft landing as it transitions to a new fiscal reality, but much more needs to be done to get our fiscal house in order. This year we took the first step toward implementing reforms that will make our State government more cost-effective and accountable, and we must continue the important work of reining in State spending in the future.”

The budget report also presents assumptions about what will happen with School Aid next year and thereafter.  These asssumptions need to be evaluated with the understanding that the state will need to close the overall deficits projected in the report and that could result in lower School Aid figures than assumed now.

For next year, the report projects School Aid will increase by $563 million.  Essentially, a repeat of this year’s School Aid package is anticipated:  freezing Foundation, High Tax, and Universal Prekindergarten Aids, and allowing expense-based and categorical aid formulas to run.

A difference next year will be that the state will begin the cycle with the federal stimulus aid already in hand.  Therefore, it can be expected that the Governor would use the remaining education stabilization aid to fund his proposal, leaving the Legislature to find other resources to pay for any additions it wishes to make to School Aid.

This entry was posted on Wednesday, April 29th, 2009 at 3:17 pm and is filed under Finance, State Budget. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.