About that “surplus”…

by E.J. McMahon |  | NY Torch

NYS 2014-15 Budget Briefing Book CoverThe last update to New York State’s financial plan, issued in early November, projected state operating funds budget gaps as far as the eye could see. Nothing new there: out-year projected shortfalls have been a feature of state budgets in New York since the current accounting system was enacted 30 years ago, and Governor Cuomo could accurately argue the gaps have gotten smaller on his watch.

But starting a few months ago, the governor began making a much bolder claim. The state, he said, would have a $2 billion budget surplus within the next budget window. He would accomplish this, he said, by holding spending growth to 2 percent a year.

In the broadest terms, the math of that promise added up. If you took the financial plan table from November, and allowed projected spending to grow by only 2 percent a year, and kept projected receipts the same, you’d have a surplus of better than $2 billion by the end of the period.

However, leading up to today’s budget presentation, the question was: how would he actually achieve this? With 40 percent of state operating funds expenditures tied up in school aid and Medicaid, and thus presumably off limits to reduction, and with the attrited-down state workforce now entering a contractual phase in which base pay raises are due after a three-year freeze, and with other hunks of spending in tough-to-reduce categories like pensions and debt service, where would the governor choose to find additional savings necessary to turn a projected 2017 budget gap of nearly $3 billion into a “surplus of $2 billion?

The answer: he hasn’t.  Not really.

Here’s what he’s done, including what he’s assuming for the next few years:

Despite new programmatic initiatives led by universal pre-K, he reduced projected 2017 spending by $2 billion, including $600 million less in spending on state agency operations, $350 million less on pensions and $600 million on mental hygiene, among other things.  But for that year, he’s also factoring in another $1.8 billion in tax cuts.  The net result is a projected budget gap of $2 billion — or would be, if the new budget hadn’t simply done away with budget gaps.

There is no $2 billion surplus — not really. Not by any traditional standard of measurement. In fact, if the Executive Budget is adopted as proposed, the state will still face budget gaps of $1.6 billion in 2016, $2 billion in 2017, and $3 billion in 2018. These figures are net of receipts totals reduced to reflect the governor’s proposed tax cuts.

That “$2 billion budget surplus” is, or was, strictly aspirational.  Or, a better word, notional.  Or hypothetical.  Or something other than actual, based on adoption of the actual budget proposed by the governor today.

Departing from a decades-old standard, the multi-year financial plan projection released with the Executive Budget no longer includes a line projecting “Net Operating Surplus/Deficit” for the next four years.  In its place is a line for “Adherence to 2% State Operating Funds Spending Benchmark,” further explained by this footnote: “The Governor is expected to propose, and negotiate with the Legislature to enact, budgets that hold State Operating Funds spending growth to 2%.”

To be sure, all Executive Budgets reflect a degree of aspiration on the part of governors. When George Pataki proposed a $6 billion tax cut in 1995, assuming its adoption, he projected big budget gaps clear through fiscal 1999. But Pataki didn’t have the nerve to erase the line for future budget gaps, substitute one that said “savings from holding future spending growth to less than 2 percent,” and proclaim to the world that he had achieved a surplus.  Although, in fact, he ultimately did.

Until now, no New York governor — indeed, perhaps no governor of any state, much less any president — has been bold enough to proclaim, as fact, a budget surplus that was merely a goal.

It’s not a bad goal, mind you. It’s a goal he and the Legislature will need to meet to keep the promises he’s making. You might even argue that the bundle of spending and tax cut proposals Cuomo delivered today ensures a measure of spending discipline in the future. There’s a lot to be said about budget, good, bad and indifferent. But by the normal rules of budgeting that have always applied in the past, based on the budget documents released today, that “$2 billion surplus” is not a reality.  It’s a bit of a bait and switch.

- E.J. McMahon is the President at the Empire Center for Public Policy.