Nearly a full month after the Legislature’s adoption of the 2009-10 state budget, Governor David Paterson’s Division of the Budget (DOB) today issued its first official financial plan update since January.  The bottom line: New York State’s long-term financial outlook has significantly deteriorated since Paterson unveiled his Executive Budget a little over four months ago.  Due to a combination of falling revenues and added spending approved as part of the 2009-10 budget deal, the state’s out-year budget gaps are more than twice as large as those the governor originally projected in his Executive Budget proposal.

The following table compares the budget gaps projected in DOB’s January Financial Plan update, which assumed adoption of the Executive Budget, with those in the Enacted Budget Financial Plan:


The projected gap in the fourth year of the financial plan has grown by a whopping $8 billion because (a) DOB’s forecast of General Funds receipts for 2012-13 has been reduced $4.3 billion since January, and (b) projected General Fund disbursements for 2012-13 have risen by more than $3.8 billion.   The large increase in the gap in the final year also reflects the scheduled Dec. 31, 2011, expiration of a $4 billion personal income tax hike enacted with the 2009-10 budget.

The Enacted Budget Financial Plan shows spending in the bellwether State Operating Funds category as rising by only 0.7 percent – a small amount by historical standards, although it should be kept in mind that DOB now projects the Consumer Price Index will fall by 0.2 percent during 2009-10.

However, the underlying expenditure trends in 2009-10 and 2010-11 are inevitably masked by the state’s use of federal stimulus funds to displace state funds in some program categories.  Out of $6.2 billion in stimulus funds that DOB says were used for state deficit-reduction purposes in 2008-09 and 2009-10, it appears at least $2.7 billion will temporarily finance higher spending than the governor originally proposed for purposes normally supported by state revenues.  This figure includes $1.2 billion that Congress required the state to use for school aid restorations, and $1.5 billion that the Governor and Legislature agreed to use to finance increased spending (over the Executive Budget levels) in other areas, including health care.

Counting temporary stimulus funds, the net increase in expenditures normally classified as State Operating Funds will rise by at least 4.2 percent in 2009-10.

The stimulus funds are slated to expire after 2010-11.  As a result, the official projection of State Operating Funds disbursements takes a sharp jump of $9.4 billion, or 11 percent, in 2011-12 – which, as it happens, is also the first fiscal year of the next gubernatorial term.  At that point, spending paid for in part with federal stimulus funds in 2009-10 and 2010-11 will have to be either cut or financed with the state’s own revenues.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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