ALBANY — The governor says the state’s finances are “decimated,” adding that New York is spending billions of dollars it doesn’t have in efforts to fight the coronavirus. The budget director says the expected revenue loss for the coming fiscal year will be $10 billion at a minimum. That’s in addition to a $6 billion budget gap that existed before the pandemic began.
How can it be, then, that lawmakers are set to approve a roughly $178 billion budget — the same topline that Gov. Andrew Cuomo proposed in January — that does not cut spending for schools or local governments and continues payments for worthy endeavors such as keeping the Buffalo Bills in Western New York?
The answer is a cocktail of federal stimulus money and self-granted clearance for future manipulations to give the books a semblance of normalcy now.
The first and biggest maneuver is a warning to local governments and school districts: This could all change at any time. The budget contains language requiring three reassessments of the state’s financial situation throughout the calendar year, and if at any point the estimates don’t match the numbers the state used to pass the spending plan, the budget office can delay or withhold local payouts.
It’s certainly not ideal, said Dave Friedfel of the Citizens Budget Commission, because local entities can’t be as dexterous making cuts later in the fiscal year.
“In the end, if those entities have to be cut part way through the year, that’s even harder to deal with, particularly for local governments or school districts who set their tax levies based on state aid,” he said.
It’s also inefficient, Friedfel said. For example, cutting one municipal worker’s position at the beginning of the year would be preferable to cutting two positions mid-year to achieve the same amount of savings, he said. School superintendents say they’d much prefer to know if they can afford all of the teachers on their payroll before they establish classrooms. Cuomo has said it’s the only way to put anything on paper now, when the state’s cash flow is essentially a moving target.
The second workaround is duly worrisome for budget hawks. Lawmakers agreed to authorize New York to blow through its borrowing abilities to the tune of $11 billion. The budget includes clearance for up to $8 billion in short-term bonds, which would be exempted from the state’s borrowing cap put in place in the year 2000. It would also allow for a line of credit of up to $3 billion that Cuomo could tap into for state expenses.
The short-term borrowing is needed to bridge the gap between April 15 and July 15, when very little revenue will come in due to the extended deadline for federal tax filing, budget director Robert Mujica said, though it’s not yet clear how much borrowing will be necessary.
“We’re not sure yet,” he said during a Thursday briefing. “We’re going to look at what the market will allow us to borrow and how much we have in reserve, and make the determination at that time.”
Watchdogs have long warned that New York’s reserves are not strong enough to buoy the state in a crisis. It’s unlikely the state’s financial situation will improve any time soon, Friedfel said. Not only is it impossible to predict how long the pandemic will continue to clobber the country, but the hit from 2020 will show up during in next year’s tax filings.
“The economic impacts are going to be really, really severe — in past recessions the financial impact is actually worse the second year than the first year,” he said.
In other words, the state could very well borrow the whole $11 billion. And if it doesn’t get $11 billion back in the short term, the budget allows the debt to be repaid by issuing more debt in the form of 30-year bonds, according to an analysis by Empire Center’s E.J. McMahon.
“The risk of this approach is that it will burden New York taxpayers with massive added government debts they will struggle to pay off, even as Cuomo (or his successors) struggle to balance the budget,” McMahon wrote. And that’s a big liability if the state and nation are entering a prolonged recession, he added.
Moody’s Investor Service has noticed. It revised the state’s credit rating outlook from “stable” to “negative,” with the expectation the “crisis will have substantial impacts on state finances and the economy, eating into the state’s reserves and straining its ability to structurally balance its budget.”
The third backfill keeping the state hypothetically solvent is federal stimulus dollars that have earned Cuomo’s criticism but are keeping a variety of services afloat. School aid, for example, should hold flat thanks to the $2 trillion stimulus package Congress passed, which will essentially negate the state’s cuts.
There’s also a pot of federal dollars that New York could use to draw down billions in enhanced federal Medicaid matching funds. But for that to happen the state would need to put off some savings measures lawmakers included in the budget as part of Cuomo’s Medicaid Redesign Team II.
It’s still unclear how the Cuomo administration will address those dollars: the governor has complained the qualifications tie the state’s hands by prohibiting planned programmatic tweaks in order for New York to accept the money. But at the same time, lawmakers and budget officials have indicated they will use it as a way to “soften the edges” of the MRT recommendations. On Thursday, Mujica said language in the budget would allow him to delay implementation of the MRT proposals. If the state does that, New York could accept the federal funds.
“Many of the MRT recommendations are part of the budget and will be enacted. … We have the ability to delay them in the budget, so the effective dates can be changed,” he said.
Overall, lawmakers called it a “crisis” budget, one that accomplished far less than they wanted in both funding and policy and just barely propped up priorities such as education and health care.
“This is not the budget we had hoped to pass at the beginning of Session, or even the budget we had envisioned just a month ago,” Senate Majority Leader Andrea Stewart-Cousins said in a statement following her chamber’s approval. “Our state’s financial situation has been thrust into a true economic crisis due to the coronavirus pandemic.”
But Cuomo has taken a different tone, saying that amid the staggering losses caused by the virus, he’s not fully focused on the dwindling dollars of an economic downturn.
He applauded the budget for including many of the policy measures he wanted — including paid surrogacy, bail reform and an enhanced state seal — and excluded those he was less enthusiastic about.
“You could put that budget against any budget that I have done in a normal year and it would be a great budget,” he said Thursday. “That it was done this year is really extraordinary.”
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