At a panel event in Albany being hosted by the Rockefeller Institute of Government tomorrow morning, The Empire Center’s EJ McMahon and other budget experts and observers will discuss the timely topic of state budget process reform.
State fiscal policy is not made in a vacuum. It’s created through specific rules, timelines and procedures. And that process — by which the Governor and Legislature jointly determine how much the state taxes, spends and borrows —impacts how much of each is done.
So, with Governor Hochul’s upcoming executive budget due out this month it’s a good time to consider how the process can be made more efficient, transparent and accountable.
Hochul’s budget will arrive in the wake of disturbing new data on further outmigration of residents and income — both flowing toward low and no tax states — and amidst fears of a looming nationwide recession. With a budget of $220 billion for the current year, the state finds itself greatly overextended in its commitments, now that the tidal wave of temporary revenue used to raise the spending baseline over the past few years—federal emergency aid and extraordinary tax revenue from a stock market surge — has receded.
And the cost of those spending commitments is rising due to historic inflation. For instance, a multi-year increase in Foundation Aid (the primary vehicle the state uses to finance local school districts) that Governors Cuomo and Hochul agreed to fund and maintain in the financial plan would cost next year alone $800 million more than originally estimated, unless course-corrected.
As McMahon lays out in a chapter of The Next New York, the state to avoid a pending fiscal nightmare needs to restrain its taxing, spending and borrowing. State elected officials need to step up to the task of prudent financial stewardship.
But they can be nudged along by reforms that increase information, transparency, and accountability.
The Empire State’s annual budget is currently negotiated during a remarkably narrow window that will begin later this month and end around April 1, when the next state fiscal year begins. As such, budget levels will be set without the benefit of April tax receipt data. New York is one of the only states not operating under a July 1 to June 30 fiscal year, even though it coincides with the academic year used by schools — the leading recipients of state-sourced funds (including a planned $24 billion next year in Foundation Aid.)
The budget process becomes increasingly opaque once the Legislature gets involved. A series of massive budget bills are rushed to the floor via a Messages of Necessity provided by the Governor and they are approved and enacted without a clear public assessment of their contents — let alone their near term and long term costs. The budget bills should be considered under regular order and costed out fully before they are subject to a vote.
And the costing out should be done by a legislative budget office modeled along the lines of the Congressional Budget Office, which has served the U.S. House and Senate effectively in a nonpartisan manner for nearly half a century. Indeed, legislation creating such an office for the Legislature has been introduced in the past by Senate Finance Committee Chair Liz Krueger. Such an office would ideally estimate the short- and long-term cost (to the State Treasury and to localities and to private businesses, in the case of unfunded mandates) of budget bills and other legislation before it comes to a floor vote. This would replace today’s absurd procedure in which state legislators assess the cost of their own bills —which typically contain “no fiscal implications” in their considered (and considerably biased) view. The budget office could also provide projections of the potential long-term costs of major programs with multiple underlying growth factors, such as Medicaid, to illustrate whether they are on a sustainable financial trajectory.
Long-term budget costs would be better amplified in the Executive Budget if the Governor’s budget office had to use GAAP accounting, which, unlike cash flow accounting, shows up front the long-term costs of multiyear investments. It also limits the budget gimmickry otherwise achievable by simply moving the timing of major payments from one fiscal year to the next.
The elimination of lump sum appropriation would increase transparency and make it harder to conceal earmark spending on local “pork” projects. These items grease individual members’ re-election prospects but typically lack a broad public purpose legislators want to debate or defend in the light of day.
With respect to borrowing, New York State has among the highest debt burdens among the states. Its debt ceiling exists in name only, since the vast bulk of state-supported debt is exempt, issued by public authorities without voter approval. A better approach is to make all such borrowing subject to a vote by the residents on the hook to pay it back.
Process reforms alone won’t put New York’s budget on a sustainable trajectory that better balances the state’s priorities. But these measures and others would provide a better toolkit for getting the job done.