An Empire Center Special Report
E.J. McMahon and Ken Girardin
New York has just enacted a pandemic-crisis budget that might as well have been written in disappearing ink—shakily “balanced” on hopes of a huge federal bailout and ultimately backstopped by the potential for unprecedented deficit borrowing.
Despite the rapid decline in state tax receipts—which, like job counts, have yet to hit bottom—Cuomo’s “highlights” press release said the budget bills just passed by the Legislature authorized state operating funds spending at exactly the same $105.8 billion level he proposed back in January.
This is an installment in a special series of #NYCoronavirus chronicles by Empire Center analysts, focused on New York’s state and local policy response to the Coronavirus pandemic.
On paper, the budget freezes total school aid at last year’s levels, which is actually $630 million less than the governor originally had sought for FY 2021. But the budget saves a net $1.1 billion in state operating funds disbursements by substituting added federal aid from the federal CARES Act stimulus bill, targeted to Title I programs serving disadvantaged students, for state-supported aid to the same schools. Authorized Medicaid spending, the next largest state-funded category, increases 3 percent—including “savings” implemented at the recommendation of Cuomo’s Medicaid Redesign Team, according to the governor. (See Bill Hammond’s further analysis of the Medicaid budget here.)
Otherwise, despite the economic and fiscal crisis, this first draft of the enacted budget features no significant spending cuts. There are no announced plans for staffing reductions or furloughs in state agencies—not even a hiring freeze. A 2 percent raise for one-third of the state’s workforce went ahead as planned on April 1, and more workers are still due for raises later in the coming year, at a fully annualized cost of about $360 million.
All this comes with an enormous asterisk: Cuomo flatly assumes he will get a whopping $10 billion bailout in the (expected) fourth federal stimulus bill. If the feds fail to deliver, Cuomo says he will exercise his newly expanded power to “adjust or reduce” spending downward during the fiscal year by $10 billion—to $95.8 billion, or $8 billion less than estimated spending in the just-concluded FY 2020. The level of the governor’s commitment to controlling spending, rather than waiting on Washington, will be reflected by whether he starts making changes during the month of April, the first of three “measurement periods” during which his budget director is empowered to implement a savings plan, subject to (unlikely) legislative override.
The wild card in the financial outlook is a provision buried in the Education, Labor and Family Assistance budget bill authorizing Cuomo to borrow up to $11 billion this year, in the form of up to $8 billion in bond anticipation notes (BANs) and $3 billion from “line of credit facilities and other similar revolving financing arrangements.”
The purpose is supposedly to cover short-term cash flow needs and budget shortfalls, but the budget language authorizes the budget director to extend the initial borrowing by a year, and then to convert it into long-term debt. This opens the door to the ultimate fiscal sin of using long-term debt to cover a short-term operating deficit, which would only dig the inevitable budget hole much deeper. Beyond vague allusions to the cash flow issue created by the federally driven delay in income tax filing deadlines, neither Cuomo nor his budget director have provided any specifics on their borrowing plans or intentions.
A very short list of budget pluses this year, consisting largely of things not done:
- There were no tax increases, dashing (for now, at least) the hopes of the New York State United Teachers and its legislative allies, who had pushed for more spending financed with big tax increases on “millionaires and billionaires.”
- Cuomo’s property tax cap apparently was left untouched, preserving a crucial layer of added protection for property owners already stressed by the sudden recession.
- Cuomo’s proposed expansion of the income cap for his Excelsior Scholarships program was not included in the final budget.
- The governor’s added power to cut spending during the fiscal year at least offers a chance that needed cuts will be made. The Legislature traditionally has been reluctant to make any cuts on a timely basis, even in severe crises.
Acting with even less public notice and scrutiny than usual, the Legislature approved statutory budget “language bill” provisions larded with unrelated policy priorities originating on the governor’s political agenda, and some that hadn’t appeared at all until the bills were adopted. Virtually all of them were lauded by Governor Cuomo in his post-budget statement.
Changes most likely to threaten the state’s ability to fiscally and economically recover from the post-pandemic recession include the following:
Expanded borrowing—In addition to the $11 billion in expanded state borrowing cited above, the Legislature authorized large increases in numerous public authority borrowing caps. These included a new maximum of debt load of $90 billion for the already strained Metropolitan Transportation Authority, which was also authorized to borrow up to $10 billion to cover operating expenses. And despite ongoing turmoil in municipal debt markets and a massive coming wave of public-sector deficit financing, the budget includes a modified version of Cuomo’s proposed $3 billion “Restore Mother Nature Bond Act,” to be submitted to voters in a November referendum. However, the proposal has what amounts to an economic escape clause: the referendum won’t happen unless the budget director certifies that it won’t “adversely affect” financing for “essential” projects or government services.
Override of local zoning to permit renewables—The thousands of wind turbines and solar panels needed to meet New York’s unrealistic and expensive renewable energy goals will be built almost exclusively in rural upstate communities, but the siting process has been slowed as local officials have raised concerns about issues ranging from water runoff to the problem posed by abandoned facilities. Under language approved in Part JJJ of the Transportation and Economic Development (TED) bill, wind and solar developers now have special privileges through state government to overrule any local ordinance that interferes with their plans—a stark reversal from just a few years ago, when environmentalists were defending the use of local zoning restrictions to block shale gas projects.
Mandated union compensation for private construction projects—Long-standing state law requires contractors on public works projects to pay the misnamed “prevailing wage,” defined by the state Department of Labor as the combined price of hourly wages and benefits required by building trade union contracts. Cuomo’s original budget had proposed expanding this mandate to several categories of projects getting tax breaks or public funding. Part FFF of the Transportation, Environment Development and Environmental Conservation (TED) bill modifies some aspects of Cuomo’s proposal while including his proposal for a “subsidy board” that could exempt individual developers from the mandate.
Extension of the Film Production Credit—As Cuomo had proposed, the $420 million a year subsidy of both films and TV shows produced in New York was tweaked slightly (to make a larger number of productions eligible for state money) and extended for another year, through 2025. This ensures that one industry, at least, will continue to enjoy extraordinary taxpayer-funded largesse into the middle of the decade, even while many other private businesses crash and struggle to recover in the severe post-pandemic recession.
More pressure for union sign-ups among government workers—Public-sector unions can’t force people to pay them anymore, so union-allied elected officials are pulling out all the stops to pressure new public employees to join. Part W of the PPGG bill will force anyone hired into a unionized workplace to sit through a decidedly one-sided sales pitch from the union, which can then use peer-pressure to get people to join. And the summary of the legislation—“to protect and strengthen unions” —should leave no one wondering whose interests Cuomo and state lawmakers are serving with this change.
Banning shale gas production using hydraulic fracturing—Citing alleged health risks, the Cuomo administration issued regulations banning natural gas “fracking” in late 2014. The budget language imposes the ban on a statutory basis, which will make it more difficult to repeal or modify in the future. Thus, some of most economically depressed areas of upstate New York will be unable to exploit their position atop the gas-rich Marcellus Shale and Utica Shale formations, which for the past decade have been highly productive sources of natural gas production, investment, jobs and royalties in Pennsylvania and Ohio.
Allowing more misleading budget numbers—The Legislature effectively gave the governor permission, going forward, to artificially deflate apparent state spending totals through the use of squirrely “refund of appropriations” language. State Comptroller Thomas DiNapoli had warned that this “raises troubling issues with respect to transparency and accuracy in financial reporting, while potentially imposing rules that are inconsistent with accepted accounting standards.” Looking into an economic abyss for FY 2021, and on the heels of Cuomo’s recent concealment of significant over-spending in the Medicaid program, it’s the worst possible time to force the comptroller to sign on to phony budget numbers.