Governor Cuomo’s third State of the State address included a laundry list of potentially pricey initiatives, ranging from an extended school day to a state-subsidized venture capital fund. We’ll find out how he intends to pay for it all next Tuesday, when he presents his 2013-14 Executive Budget plan, which will need to close a budget gap projected at nearly $1 billion without even assuming any new programs.

Cuomo’s last financial plan update indicated the state faces a net 2013-14 state operating funds shortfall of at least $982 million, growing to $4.4 billion by 2015-16, not counting any impacts from Superstorm Sandy. Although the governor closed a $10 billion budget gap upon taking office in 2011, that does not mean the latest projected shortfall poses only one-tenth the fiscal (or political) challenge. To begin with, Cuomo has changed the basis for calculating disbursements in the long-term financial plan, removing a variety of automatic inflators from the base. That means the out-year gap projections provide a more realistic picture of the state’s outlook than they used to.

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Focusing on state operating funds, the state’s Mid-Year Financial Plan update projected that Taxes and Miscellaneous Receipts (plus some small federal grants) next year would rise by $3.3 billion, or 3.9 percent. Total disbursements in the same category were projected to rise by $3.5 billion, which also comes to about 3.9 percent. After adjusting for a decline in “net financing sources,” the net projected shortfalls of receipts compared to disbursements comes to $738 million. Repayment of fund balances shifted to the general fund adds $244 million, bringing the total gap to $982 million.

Now consider some of the factors driving the projected 2013-14 spending increase:

  • $853 million more for K-12 school aid, consistent with a cap linking “formula” aid to personal income growth, plus an added $212 million for other forms of school aid and State Tax Relief (STAR) subsidies;
  • a $653 million increase in (state share) Medicaid;
  • $675 million in added employee pension contributions and health benefit costs for both active and retired state workers; and
  • $315 million in added debt service.

Total spending in those categories represents nearly 61 percent of the projected $92.87 billion in state operating funds disbursements for 2013-14. Debt service, of course, is legally untouchable. So are pensions, which Cuomo already has reduced by continuing the practice of effectively borrowing from the state pension fund, stretching some of the obligation up to ten years into the future.

Assuming school aid, Medicaid and employee health insurance are treated as politically off-limits to cuts, and assuming the governor holds the line on both taxes and fees, the only way to close the budget gap would be by making a 3 percent across-the-board reduction in absolutely everything else.  If the entire local assistance budget — including higher education, mental hygiene and transportation — was also held harmless, the gap could be closed by cutting state operations spending by 14 percent.

The state expects to end fiscal 2013 with reserves of $1.4 billion. But any withdrawal from the largest of these funds, the $1.1 billion Tax Stabilization Reserve, must be treated as a loan and repaid within six years.  Use of the $175 million Rainy Day Reserve is more restricted, requiring five straight months of economic decline and repayment in full after three years. The “community projects fund” of $57 million is reserved for legislative pork barrel member items and would be an obvious candidate for re-purposing, but Cuomo so far has agreed to allow Senate and Assembly to spend what they’ve already appropriated before he took office.

Again, the projected gap does not include any impact from Sandy. It also assumes that revenues match expectations as of last April, although they were below target through the first seven months of the fiscal year.

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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