Issues Publications In The News Releases Events About Us Empire Ideas Subscribe Donate

>> Economy

Issues

Blueprint for a Better Budget

A Plan of Action for New York State

By: E.J. McMahon and Josh Barro
Complete report in PDF format
January 04, 2010

 

INTRODUCTION

 

This document represents an effort to develop a fiscally practical, comprehensive approach to putting New York State's budgetary house in order. 

 

 It explains why and how the state developed such massive budget deficits. 

 

 It identifies programmatic changes to begin closing the gaps and to put the state's finances on a more stable footing. 

 

It explains how privatization and competitive contracting can help produce more efficient and affordable public services. 

 

 It proposes structural reforms to improve the state budget process and to reduce costs at every level of government in New York.

 

 Finally, it outlines tax policy goals to promote renewed economic growth.

 

OVERVIEW

 

New York State is broke. After decades of growing reliance on taxes generated by Wall Street, the revenue side of the state budget has collapsed to a level from which it will only slowly recover. Yet state spending has continued to rise, fed by old reserve funds, new gimmicks, tax and fee increases, and temporary federal aid. Like a runaway train, New York's budget is in danger of running completely off the rails. It needs to be brought under control—before it's too late.

 

New York's fiscal crisis is not confined to state government. Counties, municipalities and school districts all have been affected by the economic downturn and its aftermath. All levels of government will feel the impact of actions needed to close unprecedented state budget gaps over the next several years. New York State faces a comprehensive, multi-year challenge demanding comprehensive long-term solutions—including:

 

  • structural reforms and mandate relief to help every level of government cope with the recession and its aftermath, and
  • state budget-making reforms to promote better long-term financial planning and instill more transparency and accountability into the process of spending taxpayers' money.

 

New York has been out-spending and out-taxing most of the country for many years—and has also experienced a mass exodus of taxpayers[1] and slower than average economic growth[2]. Reversing those trends is the ultimate goal of the Blueprint for Better Budgeting. The plan is organized as follows:

 

I. The Collapse and Its Cause
How and why the state's budget gaps developed, and where the budget stood as of the end of 2009

 


II Rightsizing State Government
A 30-point budget savings and reduction plan worth almost $14 billion annually when fully implemented, plus privatization and outsourcing options potentially worth billions more

 


III A Framework for Reform
Strategies for making state and local government more efficient and affordable-starting with a public-sector pay freeze

 


IV Better Budget-Making
How to instill more discipline, transparency and accountability into the state budget process

 


V A Template for Tax Reform
Tax policy changes to promote a lasting economic recovery

 

I. THE COLLAPSE AND ITS CAUSE

 

The size and scope of New York State's budget problem is primarily a result of excessive and unsustainable spending.

 

State spending—from all revenue sources other than federal aid-has risen by nearly 70 percent (roughly $35 billion) over the past decade. As depicted in Figure 1 (below), spending growth slowed only slightly during the sharp downturn of 2001-03, and it has continued to increase even during a financial crisis that Governor Paterson describes as the worst since the Great Depression.

 

The estimated State Funds budget total for 2009-10, including the General Fund[3], does not include nearly $6.6 billion in normally state-financed spending temporarily offset by federal stimulus aid, which Lt. Governor Richard Ravitch has aptly described as "two years of one shots."[4] Counting expenditures supported by stimulus money, the 2009-10 rate of State Funds budget growth is about 8 percent. Inflation for the same fiscal year is estimated at zero.[5

 

 

Spending Rises As Revenue Drops

 

Most of the $3.2 billion deficit[6] projected at the halfway point in the 2009-10 fiscal year could be traced to shortfalls in tax collections. But rising spending will represent a growing share of the problem over the next three years. In Figure 2 (below), the solid line represents projected General Fund spending, and the dotted line represents projected revenues, both as of the Mid-Year Financial Plan issued at the end of October 2009. 

 

 

After bottoming out in 2009-10, General Fund revenues are projected to increase slightly over the next three years. But spending is projected to surge by over $5 billion in 2010-11 alone—and by nearly twice as much between fiscal years 2010-11 and 2011-12, when federal stimulus aid is due to expire and spending temporarily supported by the stimulus will be reclassified back into the General Fund. Meanwhile, even after this year's temporary state income tax increase expires at the end of 2011, General Fund revenues are projected to hold their own between 2011-12 and 2012-13.

 

What spending categories are driving the spending trend in the year ahead? That question is answered in Table 1 on the following page, which shows projected trends in "baseline" expenditures—those that that would take place under current law if the budget were left on autopilot.

 

 

As shown above, General Fund baseline spending is set to rise by 12 percent next year, including amounts necessary to offset reductions in available federal stimulus funds. Even after adjusting the totals to reflect the impact of federal stimulus aid on recurring spending, the underlying current-law baseline growth is 9 percent

 

This $6.4 billion of unadjusted baseline spending growth accounts for nearly all the projected 2010-11 budget gap. While the figures will be revised in the financial plan issued with the 2010-11 Executive Budget, the fundamental problem will remain. Two thirds of that problem is concentrated in two areas: school aid and Medicaid. 

 


II. Rightsizing State Government

 

As illustrated on the previous pages, New York faces enormous state budget gaps over the next several years mainly because spending is projected to grow much faster than revenues. To close these gaps, New York does not need to cut total spending but to control its growth. 

 

Controlling spending is not a simple matter of across-the-board restraint, however. Projected growth in debt service, for example, mainly reflects past borrowing. The costs of some large social programs, such as Medicaid, are driven in part by caseload growth and by complex rules dictated by the federal government. Local governments and school districts dependent on state aid must grapple with fixed costs, often state-mandated, which will continue rising unless the rules are reformed. Holding the line on total General Fund spending will require real cuts that actually result in lower spending in some other program categories. Those reductions need to produce permanent, recurring and growing savings in the years ahead. 

 

Can the state of New York provide essential services to taxpayers at a lower cost? The comparative statistics certainly suggest that it can—and should.

 

For example, although New York's local taxpayers shoulder an exceptionally heavy share of the burden for public services, New York's state government nonetheless spends considerably more than the national per-capita average. This includes significantly higher spending on such core state government functions as public education, transportation, prisons, public welfare, mental health, courts and the Legislature. If New York had budgeted at the national per-capita average in 2008, it would have spent nearly $32 billion less.

 

The recommendations that follow were inspired by three basic questions: 

 

Do we really need this?
Can we afford this?
Is there a better way to do this?

 

"Priorities of Government"
A Performance-Based Approach to Balancing the State Budget

Conventional thinking says there are only two ways to balance a budget: raise taxes or cut important services. It says budgeting is all about maintaining the status quo. But when the state of Washington faced a budget crisis in 2003, then-Governor Gary Locke adopted a third approach: budgeting based on results, without raising taxes. He called this process a Priorities of Government (POG) review.

Used properly, the new budget model can help lay the foundation for responsible state spending—and in any state, including New York.

Instead of blindly struggling to maintain the state's existing budget by adjusting for inflation and caseload increases, and cutting or taxing to make up the difference, Locke (now U.S. Secretary of Commerce) wiped the chalkboard clean and started by answering four very basic questions:

1. How much money does the state have?
(What is the existing and forecasted revenue?)

2. What does the state want to accomplish?
(What are the essential services we must deliver to citizens?)

3. How will the state measure its progress in meeting those goals?

4. What is the most effective way to accomplish the state's goals with the money available?

  • If a service/program is a core function, what level of government should provide it?
  • How can services be provided efficiently and effectively?
  • How can market forces and competition be introduced into core functions, assuring costs are controlled and quality enhanced?

After answering these questions, the governor prioritized agency activities (using ranks of high, medium and low) and purchased only the most important ones within existing revenue.[7] The result was a balanced budget-eliminating a $2.8 billion budget gap (the per-capita equivalent of the gap New York faces in 2010-11).

While the governor's model was good, he left out an important consideration: cutting important services isn't the only way to find cost savings. Necessary savings can also be found by providing services more efficiently and effectively (e.g. competitive bidding) and by instituting tough performance expectations.

Only by carefully considering the proper role of government can state officials protect individual rights while providing essential services to taxpayers in an efficient, cost-effective manner. This is not an "anti-government" philosophy; rather it is ensuring that what government is supposed to do, it will do well.

Source: Evergreen Freedom Foundation (www.effwa.org)

 

The proposals listed below are discussed in more detail on the following pages.[8] This 30-point plan does not represent an exhaustive list of potential budget-balancing actions; indeed, added savings will be needed to close future gaps. However, these ideas are offered as a starting point on the road to a more affordable and sustainable state budget for the future.

 

 

1. Reform and Restructure Medicaid

 

New York's Medicaid program, the most costly in the nation, needs to be reconfigured to provide individual health care institutions and citizens with incentives to spend less. As of 2006, the latest year for which comparable statistics were available:

 

  • With 6.4 percent of the nation's population and 8.7 percent of all Medicaid enrollment, New York accounted for 14 percent of all Medicaid spending.[9]
  • New York's $44 billion Medicaid program, including the local government share, was larger than the total budgets of 42 states.
  • New York spent 25 percent more than California, whose Medicaid program covered twice as many people.
  • New York's federal, state and local Medicaid spending exceeded the Medicaid budgets of Florida, Texas and North Carolina combined.

New York's massive Medicaid budget reflects deeply rooted patterns of health-care spending, regulation and utilization primarily designed to serve the needs of health care providers rather than patients. This yields especially extreme results when it comes to the elderly and disabled category of the Medicaid population—on whom New York spends roughly double the national average.[10

 

Left unchecked, state-funded Medicaid spending in New York will grow by 37 percent over the next three years, according to projections in the 2009-10 state budget.[11] The increase will be driven largely by growing enrollment, a result in part of state policies deliberately designed to attract more New Yorkers to the Medicaid rolls. The number of New Yorkers on Medicaid was projected to rise from 3.7 million to 4 million in 2009-10 alone. By 2013, the caseload is projected to hit 4.8 million—one of every four New Yorkers. This does not include an estimated 425,000 current enrollees in Family Health Plus (FHP), a Medicaid offshoot program for families up to 150 percent of poverty, which was expected to add another 125,000 enrollees over the next three years even before the U.S. Senate passed its version of national health care legislation, which would further expand Medicaid FHP coverage.[12] State officials estimated the Senate measure would add $1 billion to New York's health care costs.[13

 

Closing just half the total gap in Medicaid per-enrollee costs between New York and the national average would save state and local taxpayers roughly $5 billion a year. The options outlined below would move the state a big step closer to that goal.

 

Managed Care Consumer Choice—Florida has pilot-tested a promising Medicaid reform that motivates health care consumers to get preventive and primary care. The pilots had two components: Choice Counseling, which helps managed care enrollees select the health maintenance organizations (HMOs) or provider service networks (PSNs) best-suited to their needs, and the Enhanced Benefit Reward (EBR) program, which creates an incentive for such enrollees to participate in routine preventive health activities.[14] An independent analysis of the Florida program found that expenditures in the demonstration counties were 22 percent lower for the disabled population and 4.6 percent lower for other managed care enrollees.[15] Based on those results, a similar pilot program in New York City could be expected to yield state-share Medicaid savings of at least $327 million a year when fully implemented.

 

Cap Personal Care Hours—The most costly of the optional Medicaid services financed by New York's state and local taxpayers is "personal care," a category of in-home assistance including personal hygiene, dressing and feeding. At $24,762 per recipient, personal care expenditures in New York were 234 percent of the national average in 2008.[16] By capping personal care hours at an average level that is still 150 percent of the national norm, we estimate New York could save $480 million a year. This change should be phased to minimize disruption of existing arrangements.

 

Adopt Competitive Institutional Rates—New York's Medicaid program pays cost-driven hospital and nursing home rates that are 15 percent above average after adjusting for differences in the cost of living and patient conditions, according to a 2007 CBC report.[17] Reducing institutional reimbursement rates to the national norm would save a total of $860 million, including $125 million in hospital payments and $735 million in nursing home payments, CBC has estimated.[18] Rate reductions proposed by Governor Paterson in his 2009-10 Deficit Reduction Plan (DRP) are incorporated in this proposal.[19]

 

Close Eligibility Loopholes for Certain Services—New York is one of 35 states that allow non-poor individuals to "spend down" their assets to become eligible for Medicaid care. It is even possible to do this by shifting assets away to family members. The state has a 60-month "look-back" period on patient assets to determine eligibility for skilled nursing care, but there is no look-back for home care services. New York also relies on poorly incentivized counties to recover long-term care costs from individuals of financial means who refuse to pay for care provided to their spouses under the Medicaid. The Citizens Budget Commission (CBC) has estimated that New York could save at least $454 million by instituting a look-back period for home care and by actively pursuing "spousal refusal" estate recoveries on the state level.[20

 

Tighten Eligibility Screening—Asset tests, personal interviews and fingerprinting have all been eliminated as part of the eligibility screening process for Medicaid and welfare benefits. Senate Republicans have estimated that restoring these procedures would save at least $34 million a year.[21]

 



Postpone Family Health Plus Expansion—The Paterson Administration is seeking a federal Medicaid waiver that would allow a further expansion of the Family Health Plus (FHP) program to cover families with incomes up to 160 percent of the poverty level, compared to 150 percent under current law, and for the first time would allow FHP coverage of government employees. Based on a proposal by Senate Republicans during the DRP debate, we estimate postponement of the FHP expansion would save at least $80 million a year.[22

 

Reduce Excessive Hospitalization of the Elderly—As of 2004, New York's Medicaid spending of $27,200 per elderly recipient was 242 percent of the average for other states. One reason for this was New York's extraordinarily high rate of inpatient hospital treatment of elderly patients.[23] By reducing unnecessary hospital admissions 20 percent, after allowing some shift of funding to managed care, the state could save an additional $241 million in Medicaid payments, CBC has estimated.[24

 

Evaluate and Prioritize Optional Services—New York offers most of the optional Medicaid services authorized by the federal government. In addition to personal care (see above), these include eyeglasses and non-emergency transportation. Analysts of the system have pointed out that some optional services, especially prescription drugs and dental treatment, help prevent patients from neglecting conditions that would ultimately require more expensive mandatory Medicaid care. However, the entire array of optional Medicaid services is beyond the coverage offered under many employer-based health insurance plans. During the fall 2009 special session, Senate Republicans proposed eliminating up to $200 million in optional services, without further specifics.[25] The Governor and the rest of the Legislature should follow up by directing the state Health Department, in consultation with Medicaid administrators and health officials on the local level, to (a) report in detail on the cost and utilization of Medicaid optional services on a statewide and regional basis, (b) establish priorities among these services based solely on health care needs, and (c) to recommend at least $75 million in recurring annual savings starting on a pro-rated basis in the final quarter of 2010-11.

 

 


2. Medicaid Fraud and Abuse Target

 

Set Higher Targets for Fraud and Abuse Savings—A New York Times investigative series in 2005 quoted one authoritative source as estimating that at least 10 percent of New York Medicaid spending was based on fraudulent claims, and that another 20-30 percent was wasted on non-criminal "abuse" of the system.[26] The state's Office of Medicaid Inspector General has been ramping up to fuller effectiveness since it was established in 2006, and Governor Paterson recently raised the Medicaid fraud recovery target by $150 million for the last quarter of 2009-10 as part of his DRP.[27] In December 2009, the state comptroller called on the Health Department to increase scrutiny of Medicaid payments after auditors identified up to $92 million in overpayments, billing errors and other problems.[28] Under the circumstances, it is not unreasonable for the state's multi-year financial plan to include a hard target of at least $300 million a year in Medicaid fraud and abuse recoveries.[29

 

3. HCRA Program Reductions

 

The $5 billion Health Care Reform Act (HCRA) budget—supported by targeted health care industry assessments, taxes and one-shot revenues from sources such as the conversion of non-profit health insurers-has mushroomed over the past decade into a vast financing pool for programs including indigent care, graduate medical education, the Elderly Pharmaceutical Insurance Coverage (EPIC) program, and Child Health Plus. It also pays for miscellaneous initiatives promoted by various health care providers and unions. The state could save about $173 million a year by eliminating various HCRA-funded "workforce" grants ($80 million) along with tobacco research grants (approximately $60 million) and smaller grants. The related taxes and assessments would be redirected into the General Fund over the next three years but slated for phase-out or steep reduction in the long term.

 

4. Early Intervention Means Testing

 

New York's Early Intervention (EI) program offers a variety of therapeutic and support services to eligible infants and toddlers with disabilities. The non-federal share of program costs historically had been split between the state and counties, although the local share was slightly increased in 2009-10 budget. However, the state has not instituted a system of means-testing for this program, which has a $183 million General Fund appropriation in 2009-10. In other states, means testing of EI "has discouraged frivolous use of services and takes into account parental ability to pay," the New York State Association of Counties says.[30] At a minimum, as first proposed by Governor Paterson in his 2009-10 budget, a system of co-pays for EI services should be instituted to save the state $28 million a year when fully implemented. 

 

5. Refund NYSHIP premium overcharges

 

A recent audit by the state Comptroller's Office concurs with the findings of a 2008 Nassau County report finding that the state government and localities had paid $540 million in excessive premiums charged by the self-insured, government-run New York State Health Insurance Program (NYSHIP), which covers many public employees and retirees. A New York State Association of Counties study suggests that the state's health premiums could be reduced $206 million if NYSHIP's premium margins were reduced to the 2 percent in effect as of 2002.[31

 

6. Reduce health insurance mandates

 

Inpatient and outpatient mental health treatment are the latest and costliest mandated benefits to be added to small group policies sold in New York. But in the case of "Timothy's Law"-as the mandate was named, after a mentally ill child who committed suicide—legislators took the unprecedented step of appropriating money to subsidize the added costs they knew they were imposing on small businesses. The $80 million subsidy should be repealed, and lawmakers should offset the cost to small firms by eliminating a sufficient number of the state's 44 insurance coverage mandates to generate equivalent savings in premiums.[32

 

7. Reduce and Cap School Aid

 

Education in New York, like the state's Medicaid-subsidized health care system, costs far more the national average. Year in and year out, per-pupil spending in the Empire State is at or near the top of the charts. In the latest 50-state ranking of school spending, New York is once again number one.[33

 

Aid to K-12 public schools is the largest state-funded category of New York's budget. It is also the largest single factor in the projected future growth of the state's budget shortfalls. School aid has increased 75 percent in the past 10 years—a time when enrollment was flat. 

 

Under current law, the baseline budget for 2010-11 calls for a further increase of 11 percent (see Table 1), followed by 16 percent growth over the following two years. There is simply no way to balance New York's budget on a long-term basis without first halting and partially reversing the state's school spending binge. There are two sides to the Blueprint school aid proposal—financial restraint and essential reforms. 

 

Financial Restraint

 

These steps are necessary to return school aid appropriations to an affordable level for taxpayers:

 

  • Reduce school aid by 7.5 percent on a school year basis, or about $1.6 billion below the 2009-10 level. Even after this reduction, school aid at the end of the current gubernatorial term would be about 14 percent ($2.5 billion) above the level provided by Governor Pataki's final budget in 2006-07.
  • Hold school aid level in school years 2011-12 and 2012-13, allowing time for state revenues line to recover sufficiently to finance renewed increases on a sustainable basis.

Essential reforms

 

The pattern of state education spending in the late 1980s was strikingly similar to the trend of the past five years. After a very significant increase in state school aid, a severe fiscal crisis forced the governor and Legislature to take some of the money back. But in doing so without enacting mandate relief and other reforms, they also triggered a steep run-up in school property taxes. 

 

This time around, taxpayers should be protected and school officials should be given tools to cope with austerity. To that end, school aid restraint should be statutorily hard-wired to the following reforms: 

 

  • Enact a school property tax cap like the one originally proposed by Governor Paterson and passed by the state Senate in 2008. The cap, modeled on Proposition 2 ½ in Massachusetts, would limit school property tax levy increases to inflation (currently near zero) while giving voters the opportunity to "override" the limit if they want to support larger locally funded spending increases for specific purposes.[34]
  • Freeze teacher salaries for three years. For school districts outside New York City, the resulting estimated savings will offset 70 percent of the proposed state aid cut in 2010-11. A freeze would offset over half of New York City's aid reduction, compared to planned levels.
  • Repeal Taylor Law provisions[35] that give teacher unions excessive financial leverage in dealings with school boards. These include the "Triborough amendment," which allows teachers to continue collecting longevity "step" increases in their salaries after expiration of contracts, and provisions restricting the ability of school districts to outsource services.[36]
  • Repeal the provision in the recently enacted Tier 5 pension bill that prohibits school districts from making changes in health benefits for retirees without seeking the permission of active employees.[37]
  • Ensure that schools faced with tough staff reduction choices can preserve jobs for teachers who meet the highest professional performance standards by reforming the "3020-a" statute, which makes it prohibitively expensive for districts to attempt to fire incompetent teachers, and by eliminating the statutory "firewall" between pupil performance measures and teacher evaluations.[38]
  • Raise or eliminate the charter school cap to continue broadening educational choice and to ensure the state can effectively compete for its share of $4 billion in funding for educational improvement under the federal government's "Race to the Top" program, a move supported by both the Board of Regents and Governor Paterson.[39]
  • Enact contracting reforms that can significantly reduce capital construction costs. As detailed in Section III (p. 44), these include repeal of the Wicks Law and of prevailing wage requirements that add hundreds of millions of dollars to school capital expenses.

8. Cap STAR Benefits

 

The School Tax Relief (STAR) program, enacted in 1997 and fully effective in 2000, sends money to school districts to pay for generous homestead exemptions on school property taxes. An "enhanced" STAR benefit is provided for income-qualified senior citizens. STAR effectively makes the state government a co-taxpayer with every homeowner outside New York City—which, in turn, means that the cost of STAR rises with taxes. By providing what amounts to a matching grant for school property tax increases, STAR also has had the perverse effect of encouraging more growth in school taxes and spending.[40] The state can save $153 million in 2010-11, growing to $483 million in 2012-13, by capping the STAR appropriation for homestead tax exemption at its current level and by raising the age threshold to effectively prevent any growth in the number of homeowners eligible for the enhanced STAR tax break.

 

9. Flexibility Reform for SUNY and CUNY

 

New York currently provides about $3.1 billion a year in General Fund support to two of the nation's largest systems of public higher education-the State University of New York, and the City University of New York.[41] However, while SUNY and CUNY have a significant degree of autonomy compared to most state agencies, they still lack control over important aspects of their operations. 

 

Because almost all SUNY and CUNY revenue and expenditures flow through the state budget, tuition changes effectively require legislative approval, which inevitably leads to intense politicization of the issue. The average in-state tuition and fees charged by New York's four-year public colleges and universities was $1,243 below the national average for 2009-10. The difference between SUNY's "flagship" campuses and peers in the Northeast and New England states was even greater, as shown in Table 4 on page 16. New York also financed the nation's most generous higher education tuition assistance program, spending an average of $975 per student on need-based aid in both public and private colleges and universities.[42] Out of 50 public university systems, SUNY is one of 15 that does not control and retain its own tuition revenues, and one of only four whose contractual expenditures are pre-audited by the state comptroller.[43] University union contracts are negotiated by the governor's office, generally fitting the "pattern" of other state labor agreements. 

 

The Blueprint proposal is:

 

  • Grant SUNY and CUNY greater flexibility to set tuition, sell and lease assets, and collectively bargain with their employees. State General Fund support for these two systems would be converted to lump sums, eliminating all other budget appropriations for the two institutions.[44] Like the state's largest public authorities, SUNY and CUNY also would budget their own revenues; this will restrain the tendency that state officials have shown to milk university tuition and fees to close state budget gaps.
  • Reduce general fund support for SUNY and CUNY by 4 percent in 2010-11 and freeze that support over the following two years. Compared to the budgetary baseline, this generates a savings of $285 million in 2010-11, growing to $502 million by 2012-13.
  • Enact Tuition Assistance Program (TAP) reforms including an increase (from 12 to 15) in the semester credit-load defined as "full-time"; elimination of TAP for graduate students and students in default on federal loans; elimination of an added nursing scholarship and loan forgiveness program; and a requirement that non-remedial students meet higher academic standards to continue qualifying for TAP. Shift the resulting savings of $50 million to backfill General Fund support of SUNY and CUNY.

 

 

 

10. Cap Mental Hygiene Spending Growth

 

The General Fund share of local assistance spending on Mental Hygiene programs-including Mental Health, Mental Retardation and Development Disabilities, and Alcoholism and Substance Abuse—was reduced $112 million as part of the deficit reduction plan approved by Governor Paterson and the Legislature in December 2009. This same figure should be the minimum target for recurring annual savings in this area, whose General Fund budget otherwise is projected to grow by 18 percent ($384 million) over the next three years.

 

Budget reform in the Department of Mental Hygiene should focus primarily on the state's expensive system of mental hospitals and treatment centers, which are the major reason why New York's mental health spending is more than twice the national per-capita average. As of 2004, while only 10 percent of the 500,000 New Yorkers in mental health programs were housed in one of the state's inpatient psychiatric facilities, about one-third of the total mental health budget was spent on their case.[45] However, past gubernatorial proposals to close or merge facilities repeatedly have been rejected by the Legislature. The state's 2007 law authorizing civil commitment of sex offenders has only added to mental health institutional costs. A task force modeled on the Berger Commission, which recommended a restructuring of New York hospitals and nursing homes, should be created to recommend a comprehensive overhaul of the mental health system. 

 

11. Cap State Aid to Municipalities

 

The establishment of Aid and Incentives to Municipalities (AIM) program in the 2005-06 budget marked a significant reform of the state's revenue sharing program for towns, cities and villages. Five categorical aid streams were merged into one and linked to a requirement that municipalities adopt long-term financial plans with the goal of reducing costs and property taxes. The program has since grown from $850 million to nearly $1.1 billion. In the December 2009 Deficit Reduction Plan (DRP), Governor Paterson and the Legislature agreed to cut $32 million in AIM payments, reserving the largest cuts for cities least reliant on aid. Following up on the DRP action, a $100 million annual reduction in AIM over the next several years would still leave the program about 18 percent above 2005-06 levels. The AIM distribution formula should be revised to limit the impact of the aid reduction on the most "distressed" municipalities. However, as with K-12 school aid, reductions in municipal aid should be accompanied by sweeping mandate relief that will produce recurring savings for local governments (see Section III). For example, a wage freeze would save cities and towns a combined total of $100 million, minimizing the impact of an AIM reduction.[46

 

12. Freeze non-personal service spending

 

This part of the budget includes expenditures on supplies, travel and contractual services. Freezing it at 2009-10 levels would save $144 million in 2010-11, growing to $312 million by 2012-13.

 

13. Reduce Judiciary Staffing and Restructure Budget

 

Administrative control of New York courts is unified at the state level under the Office of Court Administration (OCA), which oversees everything from court operations to courthouse design. National filing statistics indicate New York courts handle one of the nation's heaviest per-capita caseloads.[47] However, New York State's combined judicial spending is also strikingly high, given the economies of scale that would be expected to result from a centralized system.[48

 

The Judiciary has been one of the fastest growing areas of the budget over the past 10 years, adding 2,435 full-time equivalent employees since 1999-2000, a staff increase of 16 percent. Prior to her retirement in 2008, Chief Judge Judith Kaye and her special commission on modernization of the court system presented the Legislature with a court reorganization plan that they said would yield savings of $59 million a year.[49] That plan, which requires a constitutional amendment to fully implement, has not been approved by the Legislature, which also has not acted on a proposed judicial pay hike.

 

We estimate that a phased-in rollback of court staffing to 1999-2000 levels through attrition would save $65 million in 2010-11, growing to nearly $196 million in 2012-13, not counting further savings from a proposed pay freeze.[50

 

14. Adjust Legislative Spending to National Average

 

At nearly $1 million per member, the budget for New York's 212-member state Legislature was more than two-and-a-half times the national average per member as of 2008. With 3,550 full-time equivalent employees as of July 2009, the combined Senate and Assembly staff was also among the largest. The New York State Legislature is rife with duplication, including separate TV studios and photography operations for each conference in each house.[51] Cutting this budget in half—to a level still well above the national norm, easily exceeding legislative budgets in most large states—would save $110 million a year compared to projected amounts. 

 

15. Permanently eliminate legislative "member items"

 

The Legislature this year once again refilled its principal pork barrel account with thousands of grants, mostly small, for a seemingly endless variety of purposes. Member items include dozens and dozens of grants to Little Leagues and other youth sports groups for everything from uniforms to field improvements—the kind of thing that, not too long ago, such groups paid for entirely through voluntary bake sales, raffles and 50-50 drawings.

 

Member items often service unobjectionable or even laudable community purposes—but why are the taxpayers throughout the state footing the bill? Not counting member items, the $133 billion state budget already includes hundreds of millions of dollars in funding for regular state agency programs with goals similar or even identical to that of member-item grants in areas such as services to senior citizens. The state could save $120 million in 2010-11 by immediately and permanently eliminating cash reserves being held for member items.

 

16. Agency mergers and consolidations

 

Division of Human Rights—Attorney General's Office

 


New York has a proud history of promoting civil rights and equality of opportunity, dating back to open-housing statutes passed a full two decades before the federal civil rights revolution of the 1960s. Given the hundreds of millions of dollars now spent on multiple layers of law enforcement, courts and prosecutors at the federal and state level, a separate state human rights agency with a 222-member staff (nearly 30 percent larger than in 1996) and a budget of nearly $13 million is difficult to justify. After shifting $3 million to the Office of the Attorney General to create a new Human Rights Unit, net annual savings from eliminating the Division would come to nearly $10 million.

 

Council on the Arts—Department of Education
New York's heavy spending on state grants to cultural institutions, arts groups and individual artists is especially striking given the fact that New York City separately is spending $160 million in local funds for essentially the same purposes—exceeding the budget of the National Endowment for the Arts.[52] Arts and cultural agencies, like other nonprofits, have been financially stressed during the recession. Nonetheless, it is difficult to defend continued high spending in this area during a fiscal crisis that threatens the financing of essential public services. Eliminating the Council of the Arts, moving grants administration to the Department of Education, and limiting arts spending to the national per-capita average in areas outside New York City would generate savings of $35 million.[53

 

Consumer Protection Board—Attorney General's Office
The state now supports both a Consumer Protection Board and an active Consumer Frauds Bureau in the Attorney General's office. Eliminating the CPB and shifting its function to the Attorney General would save $3.3 million a year.

 

Office of Real Property Services—Department of Taxation and Finance
The Office of Real Property Services (ORPS), a small agency that oversees local property tax administration, would fit neatly into the much larger state Department of Taxation and Finance (T&F), which administers all other state and local taxes. This was recognized in Governor Paterson's 2009-10 budget initiative to have T&F "host" human resources and procurement for ORPS. Assumed savings from a complete administrative merger of the two agencies are estimated at $2.5 million.

 

Office for Prevention of Domestic Violence—Children and Family Services
While domestic violence is a serious social and legal issue, there is scant justification for having a separate agency dedicated to its prevention. The functions of the Office, including a statewide hotline complementing local hotlines, should be shifted to the Office of Children and Family Services, for a net annual savings of $2 million.

 

Office for Regulatory Reform—Division of the Budget
The creation of this Office was meant to signal the Pataki administration's commitment to de-regulation, but its impact and significance has faded. Eliminating the agency and shifting responsibility for regulatory cost-benefit analysis to DOB would save about $700,000 a year.

 

17. Welfare reforms

The landmark federal welfare reform bill of 1995, keeping President Bill Clinton's promise to "end welfare as we know it," was a significant success in New York and across the country. The shift in emphasis from handouts to employment incentives, buttressed by increased subsidies for low-income workers, led to a 62 percent drop in the public assistance caseload between 1995 and 2005. In the first 10 years after the reforms were enacted, over one million New Yorkers left the welfare rolls, and the state's child poverty rate fell by 23 percent.[54] But New York's per-capita state spending on general welfare programs remains high by national standards, even though part of the cost is borne by New York City and county governments. The welfare reforms summarized in Table 5 on Page 24 would seek to reinforce the success of welfare reform and build on the principle of rewarding self-sufficiency and discouraging dependency. The resulting budget savings can be used to prevent deeper cuts in other social program areas.

 

 

18. Repeal low- and medium-priority housing programs 

 

In its 2008 core mission budgeting report, the Division of Housing and Community Renewal identified its periodic local subsidies program (which totaled $15.4 million in 2009-10) as a "low" priority.[55] The Neighborhood Preservation program ($11.6 million) and Rural Preservation program ($4.97 million) were identified as "medium" priorities. Repealing these programs, and requiring tenants (through landlord surcharges) to finance what is now a $2.7 million General Fund subsidy for administration of rent regulations in New York City and a handful of other localities, would save $34.7 million a year.

 

19. Eliminate Stem Cell and Innovation Fund

 

In 2007, New York created its own fund to subsidize stem cell research. While the Empire State had never committed so much direct support to any other form of medical research, the stem cell initiative served to highlight ideological differences between New York officials and the Bush administration on the restriction of federal funding for embryonic stem cell research. Those restrictions have now been loosened by the Obama administration, and a state-funded stem cell fund is a luxury New York taxpayers could not afford in any case. Cutting-edge medical and scientific innovation is best left to the traditionally effective mix of private venture capital and federal support. State officials can best strengthen the prospects of New York's own medical research sector by adopting comprehensive pro-growth economic policies. Eliminating the stem cell fund will save $66.2 million in 2010-11, growing to $163 million by 2012-13.

 


20. Adjust prison spending to reflect inmate decrease

 

The vast expansion of New York's prison system in the 1980s and early 1990s created the cell space needed to back up improved policing and tougher sentencing laws in the 1980s and 1990s. But New York's corrections system wasn't just more spacious; it was also more costly than the national norm as of 2001, the latest year for which comparable state data are available, as shown in the chart at right. New York's inmate population peaked at 71,472 at the end of 1999, and had dropped to 58,868 by December 2009. But prison capacity and staffing has not moved in line with population. The state now employs about 52 corrections staff per 100 inmates, compared to 46 per 100 a decade ago. 

 

It's time to implement former Governor Spitzer's proposal, rejected by the Legislature in 2007, to establish a prison closing commission patterned after the Berger Commission. A 2007 Citizens Budget Commission study suggested that New York could save $310 million by fitting its prison structure to the population it houses.[56] Since then, the population has dropped by another 2,000 inmates, so potential savings may be even larger. Some steps in the right direction were taken by Governor Paterson and the Legislature in the 2009-10 budget with the closing of three minimum security correctional camps and of some prison annexes. The state could realize significant added savings by more aggressively pursuing alternatives to incarceration for nonviolent offenders and probation violators, as the state of Texas has recently done with some success.[57

 

21. Reduce spending on capital projects

 

The state plans new debt issuances of $6.1 billion in 2010-11—about $130 million more than in 2009-10, and a full $1 billion more than in 2008-09. About 11 percent of the projected bonded capital consists of previously voter-approved general obligations for transportation and environmental projects, and another 17 percent would consist of transportation bonds supported mainly by dedicated taxes and fees. The remaining roughly two-thirds is distributed for other purposes, with education (both K-12 and higher education) and economic development dominating a list that also includes prisons and mental health facilities. One of the largest economic development borrowings is in support of a $4.2 billion semiconductor plant near Albany—the biggest state-subsidized project in New York's history, in which the taxpayers are effectively partnering with a subsidiary of the world's number-two semiconductor manufacturer, AMD. That project is well underway and irreversible at this point.[58] But borrowing is also authorized for a slew of other less essential purposes, including a variety of regional development projects of the sort that critics have labeled "capital pork."[59

 

At least half of these non-transportation, non-voter authorized borrowings—including the final phase of the "EXCEL" school construction program-should be cancelled or postponed. The resulting $1.8 billion reduction in bonding would translate into debt service savings of about $100 million a year, although project scheduling probably means no more than half that figure could be saved in 2010-11. Another $90 million could be saved by canceling the non-bonded portion of "state facilities equipment" purchases. We estimate total savings from this reduced capital spending would come to $140 million in 2010-11 and $100 million in subsequent years.

 

PART 2 >>