New York State Budget New York State Budget

andand Jobs Summit:Jobs Summit:The FY 2010The FY 2010--11 Budget and the Longer Run11 Budget and the Longer Run

A Presentation by the

Citizens Budget Commission

February 23, 2010February 23, 2010

2

Presentation OverviewPresentation Overview

►► Budget Challenges this YearBudget Challenges this Year

�� Pattern of high spending growth combined with large Pattern of high spending growth combined with large

revenue losses creates large budget gapsrevenue losses creates large budget gaps

�� The Executive Budget is a down payment but does not The Executive Budget is a down payment but does not

do enoughdo enough

►► The Big PictureThe Big Picture-- Going off the Cliff or Avoiding it Going off the Cliff or Avoiding it

by Restructuringby Restructuring

�� Meaningful spending reductionsMeaningful spending reductions

�� Avoiding taxes and deficit financingAvoiding taxes and deficit financing

�� More strategic investment of limited resourcesMore strategic investment of limited resources

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Budget Challenges this YearBudget Challenges this Year

►► GovernorGovernor’’s plan includes actions to close a $7.5B s plan includes actions to close a $7.5B gap in FY 2010gap in FY 2010--1111

►► Counts on $1B added federal Medicaid aidCounts on $1B added federal Medicaid aid

►► Positives of the plan:Positives of the plan:�� Largely recurring and mostly spending reductions; oneLargely recurring and mostly spending reductions; one--shots minimizedshots minimized

�� New taxes limitedNew taxes limited

�� Creative proposals around SUNY/CUNY and agency Creative proposals around SUNY/CUNY and agency mergersmergers

►►More savings needed in Medicaid and workforceMore savings needed in Medicaid and workforce

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Summary of the FY 2010Summary of the FY 2010--11 11

Executive BudgetExecutive Budget

Gap Closing PlanFiscal Year 20010-11 $ in millions Percent

Budget Gap ($7,476) 100%

Spending Actions $4,609 62%

School Aid 1,838

Medicaid 822

Operating Efficiencies 707

Labor 250

Other 992 Revenue Actions $1,465 20%

Tax on Sugar Syrup 465

Cigarette Tax Increase 210

Medicaid Provider Tax 216

Other 574 One-shots/Borrowing $827 11%

Federal FMAP Extension $1,060 14%

Remaining (Gap)/Surplus $485 6%

Value of the Proposals

Source: New York State Division of Budget, Financial Plan Projections, 30-Day Amendments, February 10, 2010.

Proposed growth is 0.0% for State Operating Funds and 0.9% for All Funds

No Growth-Low Growth Proposed

for Next Year

(dollars in billions)

79

134

79

135

$-$20

$40$60

$80$100

$120$140

$160

State Operating

Funds

All Funds, incl

fed

FY 2009-10 FY 2010-11

**

* Includes changes to the STAR program

** Include $302 M in AIM reductions to NYC

*

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School Aid Reductions ReasonableSchool Aid Reductions Reasonable

►► Budget proposes reductions Budget proposes reductions that represent 2% of total that represent 2% of total spending; $1.1B in totalspending; $1.1B in total

►► Over 10 yrs school spending Over 10 yrs school spending up $25B; State aid up 115% up $25B; State aid up 115% In 2009In 2009--10 average spending 10 average spending per pupil reached $20k; U.S. per pupil reached $20k; U.S. Avg. $11k in 2006Avg. $11k in 2006--0707

►► Reductions targeted; Salmon Reductions targeted; Salmon River (poorest in NYS) will River (poorest in NYS) will increase increase $550 per pupil while $550 per pupil while Scarsdale (top 20 richest) will Scarsdale (top 20 richest) will decreasedecrease $110 per pupil$110 per pupil

Total Spending on Schools in NYS

(dollars in millions)

$10,963

$23,599

$15,205

$25,967

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

1997-98 2007-08

Federal State Local

$27.3B

$52.1B

115%

Source: New York State Department of Education

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Medicaid

$4,318m, 63%

School Aid

$1,751m, 26%

All Other

$758m, 11%

Medicaid Slowed this Year but Up Medicaid Slowed this Year but Up

Rapidly in Subsequent YearsRapidly in Subsequent Years►► Current proposal = $1.7B; Current proposal = $1.7B;

$800M in reductions and $800M in reductions and

$900M in new dedicated $900M in new dedicated

““sinsin”” taxestaxes

►► Reduces state operating Reduces state operating

funds baseline spending funds baseline spending

growth from 8.7% to 3.6%growth from 8.7% to 3.6%

►► 412,000 additional enrollees 412,000 additional enrollees

expectedexpected

►► More work needed on rate More work needed on rate

reform, utilization patterns, reform, utilization patterns,

and eligibility loopholesand eligibility loopholes

Sources of General Fund Spending Growth

FY 2010-11 to 2011-12

Medicaid Driving Spending Growth

Source: New York State Division of Budget

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Labor Expectations Out of Sync with Labor Expectations Out of Sync with

Economic RealityEconomic Reality►► Financial plan Financial plan ““plugplug”” of of

$250M insufficient; 3.3% of $250M insufficient; 3.3% of

the gapthe gap--closing compared closing compared

to 23% share of budgetto 23% share of budget

►► Health insurance and Health insurance and

pensions up 9% and 19% pensions up 9% and 19%

per yr on avg. to 2013per yr on avg. to 2013--1414

►► Average total comp per State Average total comp per State

employee in coming year employee in coming year

$90,224$90,224

►► Just 700 positions to be Just 700 positions to be

eliminated this year; 0.5% of eliminated this year; 0.5% of

workforceworkforce

►► Wage freezes, greater Wage freezes, greater

headcount reductions, and headcount reductions, and

more fringe benefit savings more fringe benefit savings

neededneededSource: New York State Division of Budget

-0.3%

0.8%

5.8%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Employee Compensation

PI

CPI

Changes from 08-09 to 09-10

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The Longer Run: NY Faces a CliffThe Longer Run: NY Faces a Cliff►► Assumes a slow and steady recovery with tax revenue growth Assumes a slow and steady recovery with tax revenue growth

averaging 3 percent per yearaveraging 3 percent per year

Source: New York State Division of Budget, Financial Plan Projections, 30-Day Amendments, February 10, 2010.

Significant Budget Gaps Loom (After Executive Gap-Closing Actions)

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

$70,000

2010-11 2011-12 2012-13 2013-14

mill

ions o

f dolla

rs

General Funds Disbursements

General Fund Receipts w/Net Transfers

$5,386

$10,656

$12,397

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Raising Taxes is Not the AnswerRaising Taxes is Not the Answer

►►Taxes have already been raised significantly Taxes have already been raised significantly –– Last yearLast year’’s s

budget included $8B in measures to increase revenuesbudget included $8B in measures to increase revenues

►►The Tax Foundation The Tax Foundation ranks New York #49 ranks New York #49 among states among states

on its on its business climate business climate index naming the state among the index naming the state among the

ten states whose tax systems ten states whose tax systems ““are the most inhospitable are the most inhospitable to economic growthto economic growth””

►►Census data show that our combined state and local tax Census data show that our combined state and local tax

burden per $1,000 of personal income is 36burden per $1,000 of personal income is 36 percent above percent above the U.S. averagethe U.S. average –– NY ranks as having 2nd highest burden NY ranks as having 2nd highest burden

among statesamong states

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Borrowing or Pushing Down More on Borrowing or Pushing Down More on

Local Governments Also Ruled OutLocal Governments Also Ruled Out

New York Deeply in DebtNew York Deeply in Debt

►► $50B owed; much $50B owed; much more than is more than is affordableaffordable

►► $11B outstanding for $11B outstanding for prior deficitsprior deficits

►► Budget cuts $1.8B in Budget cuts $1.8B in capital spending over capital spending over 5 yrs. to stay under 5 yrs. to stay under statutory debt cap statutory debt cap from 2000from 2000

Highest Local Taxes in U.S.Highest Local Taxes in U.S.

►► Burden per $1,000 PI is Burden per $1,000 PI is 77% above average77% above average

Source: U.S. Bureau of the Census, State and Local Government Finances, 2007

All Other, $44

School

Spending,

$30

U.S. Average New York

$84

$47

Medicaid, $10

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A Longer Run AgendaA Longer Run Agenda

►►Reject tax increases or borrowing to fund Reject tax increases or borrowing to fund operating expensesoperating expenses

►►Lower State spending on Medicaid, Education, Lower State spending on Medicaid, Education, Compensation and Benefits Compensation and Benefits �� Give management more leverage in collective Give management more leverage in collective bargaining bargaining

�� Prioritize services for the neediest New YorkersPrioritize services for the neediest New Yorkers

►►Adopt new, strategic approach to investment Adopt new, strategic approach to investment that promotes economic growth and that promotes economic growth and infrastructure modernizationinfrastructure modernization