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NEW YORKNEW YORK

2009-10 Executive Budget

Governor David A. Paterson December 16, 2008

Overview

� Greatest Economic and Fiscal Challenge of Our Lifetimes

� Guiding Principles, Governor Paterson’s Approach

� 2008-09 Deficit Reduction Plan

� 2009-10 Executive Budget

-2-

Greatest Economic and Fiscal ChallengeGreatest Economic and Fiscal Challenge

of Our Lifetimes

$

General Fund Tax RevenuesGeneral Fund Tax Revenues

50.0

49.0

48.048.0

47.0

46.0

45.0

44.0

$49.5B

-6.6%

$46.2B

0808-0909 09 1009-10

A Struggling Economy – Plummeting Revenues

� Greatest crisis on Wall Street since the Great Depression. Financial services sectoraccounts for twenty percent of state tax revenue.

� Nationally, 533,000 jobs lost in November, highest total in 34 years. Nearly two millionjobs lost since beginning of the year.

� NYSNYS economy expectt ed d tt o ll ose at t ll eastt 180,000 jobs – 60,000 in financial services sector alone. NYS unemployment rateexpected to rise above 7 percent in 2009.

� RR eal l GDPGDP will ill dd ecllii ne ff or ff our consecutitive quarters. Consumer spending will decline for 3 straight quarters. Would represent first time either has happened since World War II.

� NatiN ti onall unempll oyment clt ail i ms hh ave reache h d d4 million, highest total in 26 years.

� Currently, 43 states facing deficits totalingnearly $100 billion.

-4-

Four-year Deficit: $51.1 Billion

ProjectedProjected GeneralGeneral Fund DeficitsFund Deficits

20.0

15.0

10.0

5 05.0

0.00.0

$17.1B

$13 7B

$18.6B

$13.7B

$1.7B

2008-09 2009-10 2010-11 2011-12

-5-

Guiding Principles Guiding Principles

Governor Paterson’s Approach

Guiding Principles

1. Adjusting to New Fiscal Reality: One of the pillars ofour revenue base – Wall Street – has been transformed. We must fundamentally reevaluate how we manageWe must fundamentally reevaluate how we manage

state government and what we can afford to spend.

2. C t ti C Mi i St tConcentrating on our Core Mission: State governmentt will continue to deliver essential services. Some programs will have to be scaled back or eliminated in ord tder to ffocus lili mit itedd resources on eachh agency’’s core mission.

3. Acting Comprehensively, Shared Sacrifice: Given magnitude of the deficit, cannot solve our problems by either reductions or revenues alone – actions taken across every area of government.

-7-

The Importance of Context

Even after proposed reductions, significant spending commitments will remain for our state’s core priorities in every area.

� Historical Perspective: There have been significantincreases in spending over recent years in many policyareas, which were fueled by revenues from record Wall Street profits.

� National Perspective: Even after proposed reductions, New York will still sppend far more than most other states in the nation in many areas – particularly education and health care.

-8-

2009-10 Executive Budget

Budget proposal delivered more than one month before constitutional deadline.

� Step One: 2008-09 Deficit Reduction Plan (February 1)

y Needed to eliminate current-year shortfall.

y Financial Plan assumes February 1 enactment of Deficit Reduction Plan.

� Step Two: 2009-10 Executive Budget (March 1)

y Closes 2009-10 deficit, makes important strides toward structural balance.

y Financial plan assumes March 1 enactment – one month prior to beginning of 2009 10 fiscal year beginning of 2009-10 fiscal year.

-9-

Step One: 2008-09 Deficit Reduction Plan

Environment HigherLocal Gov.$75M Education

Medicaid/

Health Care

$500M New SavingsNew Savings $771M

All Other

$140M

Human

Services

$15M

New Legislative Programs $93M $68M$30M$30M

20082008--09 $1.7 Billion09 $1.7 Billion Deficit Reduction PlanDeficit Reduction Plan

2008-09 Deficit Reduction Plan

Examples

� NYPA Transfer: $306M

� Agency Spending Controls: $100M

� AA vaailable ilable FF und nd BalancesBalances: $100M

� Member Items: $45M

New Savings: $771 MillionNew Savings: $771 Million

-11-

Step Two: 2009-10 Executive Budget

$13.7 Billion Savings Plan$13.7 Billion Savings Plan

Non-recurring Actions,

$1.1B, 8% Recurring Revenue Actions,

Recurring $3.1B, 22%Recurring $3 1B 22% Spending

Actions,

$9.5B, 70%

2009-10 Executive Budget Overview

Balanced plan for a balanced budget:

� Recurring Actions (92%)

� Recurring Spending (70%) � Recurring Revenue (22%)

� Non-recurring Actions (8%)

� Does � not include FederalDoes not include Federal Stimulus Package or use ofRainy Day Reserves.

-13-

-

0.0

ProjectedProjected GeneralGeneral Fund DeficitsFund Deficits

Four-year deficit

2008-09 2009-10 2010-11 2011-12 20.0

$17.1B

$18.6B Four year deficit would decline by 88 percent from $51.1 billion to $5.8 billion

10 0

15.0 $13.7B

$1

3.7

B

$1

5.3

B

$1

4.6

B

5 0

10.0

$4 0B

0.0

5.0

$1.8B

$4.0B

$1.7B

Important Strides Toward Structural Balance

-14-

General Fund Spending GrowthGeneral Fund Spending Growth

6.7% 7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

Average 2003-04 2009-10

to 2008-09

6.7%

0 0%0.0%

All Funds Spending GrowthAll Funds Spending Growth

Lowest spending

5.0%5 0% growth ith in

5.0%

4.0%

3.0%

2.0%

1 0%1.0%

0.0%

Average 2003-04 2009-10 to 2008-09

13 years

1.1%

Reining in Unaffordable Spending Growth

-15-

t t

General FundGeneral Fund

$56 4B$56.4B

$1.0B

-1.8%

$55.4B

6.4

6.2

6.0

5.8

5.6

5.4

5 25.2

5.0

4.8

2008-09 2009-10

EEnactedd EExecutiive

5

5

5

5

5

5

55

5

5

0.5%

All FundsAll Funds

$121 6B$121.6B

121.6

121.5

121 4121.4

121.3

121.2

121.1

121.0

120.9

2008-09 2009-10

EnactedEnacted ExecutiveExecutive

$548M

-0.5%

$121.1B

Decline Compared to Original 2008-09 Enacted Budget

-16-

School Aid

Substantial Investment in Education

21.0

19.019.0

17.0

15.0

13.0

11.0

School Aid (School Year)School Aid (School Year)

$21.4B

$19.8B

69%

$16.3B

$17.8B $8.7B

$13.6B

$14.4B $14.6B

$14.5B

$15.3B

$12.7B

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09

-18-

Highest Per Pupil Education Spending in the Nation

63 percent Above the National Average

#1 New York: $14,884 US Average: $9,138

NY

NJ

VT

CT

MA

RI

ED

AK

WY

PAMD

ME

NH

WI

HI

OH

MI

VA

WV

ILMN

US

INNE

ND

MT

GA

OR

CA

LAKS

IAMO

SC

NM

CO

AR

WA

FLKY

SD

AL

TX

NC

NV

MS

OK

TN

AZ

IDUT

-19-Source: Most recent US Census Data Available (2006)

15,000

13,500

12,000

10,500

9,000

7,500

6,000

4,500

3,000

1,500

0

Adjusting to Changing Fiscal Circumstances

� Remain committed to $7.0 billion increase in School Aid originallyproposed in 2007-08. But have to responsibly adjust timeframe to changing fiscal circumstances.

� Year-to-yyear School Aid reduction of $698 million (3.3 percent). School Aid would total $20.7 billion.

y Maintain Foundation Aid and UPK at 2008-09 levels. Extend phase-in from four years to eight years.

y

A llOne-time Deficit Reduction Assessmentt. PPartitially offffset

b t byincreases in some other aid

categories such as Building Aid.

21.0

19.0

17.0

15.0

13.0

11.0

School Aid (School Year)School Aid (School Year)

Inflation = 32 percent

$20.7B

$12.7B

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10

-20-

Average Deficit Reduction AssessmentAverage Deficit Reduction Assessment by District Wealth*by District Wealth*

14%

12%

10%

8%

6%

4%

2%

0%0%

1 2 3 4 5 6 7 8 9 10

Wealth Percentile

Poorest Wealthiest

Deficit Reduction Targeted in Equitable Manner � Progressive Approach:

Individual districts experience Deficit Reduction Assessments ofAssessments of approximately between 3 percent to 13 percent based

need tax on district wealth, student

effortneed, tax effort.

� School Districts have reported over unreserve d f und b

$1.3 billion in d f d ballances.

More than 87 percent ofschool districts statewide

ab l ances i have unreserved fund

f t ih b l in excess o f their proposed year-to-yearSchool Aid reductions.

-21- *Excludes NYC and Yonkers

Medicaid/Health Care

$

20092009--10 $3.5 Billion* Savings Plan10 $3.5 Billion* Savings Plan

Hospitals Insurance$700M Industry20% $855M 24%

Pharmacies

$111M

3%

Nursing Homes Oth $420M$420M $264M Other

12%

8%

Medicaid Fraud

$125M

3%

Tax on Non-diet Home Care Soft Drinks for $189M

Health Care 5%Delay CycleInvestments Payment Public Health$404M $400M $122M11% 11 % 3%3%11 %

Medicaid/Health Care Overview

� Balanced plan spread across all sectors.

� Reduces growth. No year-to-year reduction. Medicaid spending will still behihighhest it in ththe nattii on.

� No reductions in eligibility or or benefits benefits for for MedicaidMedicaid recipients.

� Continues implementing critiiticall reiimbbursementt reform efforts to improvequality, efficiency of NewYoork’ss heaealtth cacare e systesyste m.

-23-*Net total after $60 million in New Investments

$

0%7.0%

Total Medicaid SpendingTotal Medicaid Spending

49 049.0 $48.2B

48.0

47.0

46.0

45.0

44.0

43.0

42.0

41.0

2008-09 2009-10 2009-10 Before After Actions Actions

$45.4B $45.0B

$3.2B

7.0%

$432M

1.0%

Total MedicaidTotal Medicaid Spending:Spending: Actual vs. InflationActual vs. Inflation

Actual: 51% Increase, $45.4B Inflation: 32% Increase, $39.7B

50.0

45.0

40.0

35.0

30.0

25.0

$45 4B$45.4B

$39.7B

$30.1B

99-00 Inflation 09-10

Slowing Growth in Medicaid Program

-24-

#1 New York: $2,283 More than Twice the National Average #2 Rhode Island: $1,659

US Average: $1,026

National Average

NY

RI

VT

ME

MA

AK

NM

PALACT

WV

MN

DE

MS

TN

AR

MO

KY

OH

NC

AZ

US

NJ

ILMD

SC

OK

MI

NH

WA

IAINHI

NE

WI

AL

WY

ND

CA

KS

GA

SD

OR

TX

MT

FLIDVA

CO

UT

NV

2,000

1,500

1,0001,000

500500

0

Highest Per Capita Medicaid Spending in the Nation

-25-Source: Most Recent CMS Data Available (FFY 2007)

Spending Exceeds the National Average Across Almost Every Sector

Medicaid Spending (Avg. Cost per Eligible Recipient)Medicaid Spending (Avg. Cost per Eligible Recipient)

$2,500

$2,000

$2,038 Legend

US Average New York

Only sector New

$1,500 $1,287$1,209

$1,032

Only sector New York is reimbursing below the national average

$1,399

$500

$1,000 $752 $730

$572

$0

$500 $352

$191 $137

$267

Hospitals Home and Nursing RX Clinics Physicians / Community- Homes Other based Care Practicioners

-26-Source: CMS, 2008 Statistical Supplement Table 13.2 13.3 (FFY 2005 Data)

Hospital Reimbursement Reform – A More Rational System

Inpatient Primary/Investing in Primary and

Services

More Costly,

Preventative

Less Costly,

Preventative Care

Less Efficient, Over-reimbursed

More Efficient, Under-reimbursed

Increase

$$$ Reimbursement

Increase Reimbursement

LowerLower

$$$ -27-

�

A Healthier New York

� Poor diet and physical inactivity causeup to 365,000 deaths per year.*

PercentagePercentage of New Yorkersof New Yorkers Who are Obese*Who are Obese*

�

��

Obesity epidemic One out of every fourObesity epidemic. One out of every four New Yorkers is obese (25.5 percent).Up from 13.9 percent in 1995.*

Each additional 12-ounce soft drinkEach additional 12 ounce soft drink consumed per day increases risk of a child becoming obese by 60 percent.**

24.0%

26.0%

22.0%

25.5%

� High soft drink consumption increases risk of diabetes by 83 percent inwomen.***

20.0%

18.0%

� Levy 18 percent additional sales tax on non diet soft drinks Expected to reducenon-diet soft drinks. Expected to reduce consumption by 5 percent.

16.0%

14.0%

13.9%

� Revenue dedicated to health care programs.programs.

12.0%

10.0%

95 96 97 98 99 00 01 02 03 04 05 06 07

-28- *CDC **Harvard Medical School/School of Public Health ***Journal of the American Medical Association

STAR Program

t

STAR Program

� Continues STAR exemption ($3.25 billion). Has a direct impact on New Yorkers’ property tax bill. Maintains core purpose of the program.

� Eliminates STAR rebate check ($1.4 billion). No direct relation to property tax billproperty tax bill.

� Equitable treatment. NYC STAR income tax credit returned to pre-rebate (2005-06) levels. Decreases credit from $290 to $125 for

i d l d $145 $62 50 f i di id l ($364 illi )married couples and $145 to $62.50 for individuals ($364 million).

� Pre-rebate Levels. Effectively returns total STAR spending to pre-rebate levelsrebate levels.

-30-

Returning STAR to Pre-rebate Levels

STAR SpendingSTAR Spending

5.0 $4.8B $4.7B

$1.5BLeggend* $1.5B4.5 $

$4.2BExemption

$0.9B4.0 Rebate

3 53.5 $3.2B $3.2B$3.1B

$3.3B $3.3B $3.2B3.0 $2.8B$2.7B

$2.5B

2.5

$1.9B2.0

1.5 $1.2B

1.0 $0.6B

0.5

0.0 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10

-31-*Includes NYC PIT Credit

Higher Education

Investing in Higher Education

� Investment Plan: For the first time in at least 30 years, tuition increase ((SUNY $620, CUNY $600)) is tied to an investment pplan. In 2008-09, 10 percent of fiscal benefit from tuition increase will be set aside for increased investment. Twenty percent will be set aside in 2009-10, growing to 50 percent in later years.

� Minimizes Further Reductions: Tuition increase minimizes need for further reductions in state support for SUNY/CUNY.

� Tuition Remains Affordable: SUNY and CUNY tuition would remain below Tuition Assistance Program (TAP) maximum threshold of $5,000. Lowest in region and below national average.

� Capital Investment: Continues the $9.3 billion multi-year capital plan enacted in 2008-09, including $834 million in new appropriations for critical maintenance projects.p j

-33-

Bank

Public/Private Partnership

Bank

provides loan

to studdent

StudentStudent

Private Bank

Originates the Loan

SONYMA issues bondsissues bonds,

purchases loan from

bank

Student’s loan

repayments repayments

used to repay

SONYMA bonds

SONYMA IssuesIssues Bonds,

Purchases Loans

NYHELPs Student Loan Program

� Will provide at least $350 million in loans to 45,000 students annually.

� All resident undergraduate and graduate students enrolled full-time in a degree program at a college or university in New York State would be eligible to apply.

� Expected interest rate 8 percent. Would be up to 10 percentage points lower than conventional private loans. Future rates will will vary vary based based on on market market conditionsconditions , butbut NYHELPs loan will always be lower than conventional private loans for almost all borrowers.

� State invests $50 million to capitalize program in 09-10, then $10 million annually.

-34-

Tax and Fee Actions

;

Tax Reforms and Actions

Examples:

Eliminate Clothing Exemption;g p Eliminate Ineffective Gas Tax Cap; Close Digital Download Loophole;

Wealthy Share in Burden ($216M) Luxury Tax on High-cost Furs, Jewels, Jets

Limit Deductions for Millionaires Close Hedge Fund Loophole

Close Tax Free Yacht/Jet Loophole

$2.2 Billion General Fund$2.2 Billion General Fund ($4.1 Billion All Funds)($4.1 Billion All Funds)

Fees

lExamples: Drivers License (Last Changed 1992)

License Plates (Last Issued 2001) Auto Registration (Last Changed 1998) Tobacco Retail Fee (Last Changed 1990)

Specific Sectors

Examples:

Tax on Non-diet Soft Drinks

Utility Assessment

Insurance Assessment for Timothy’s Law

Reinstitute Hospital AssessmentReinstitute Hospital Assessment

Reinstitute Home Care Assessment

Tax Reforms and Actions

$1.5B GF ($1 5B AF)($1.5B AF)

Targeted tog Specific Sectors

$652M GF ($2.3B AF)

Tax and Fee Actions

-36-

Local Governments

Aid and Incentives for Municipalities

� Maintain 2009-10 AIM payp y ments at 2008-09 levelsoutside NYC, eliminating $61 million increase.

�� Funding for AIM outside NYCFunding for AIM outside NYC has increased by $290 million or 62 percent compared to 2004-05 and will still total $755 million in 2009-10.

� Eliminate NYC AIM payment.Last y ear NYC received $246Last year NYC received $246 million. Represents 0.5percent of NYC’s revenue.

Historical AIM PaymentsHistorical AIM Payments (Outside NYC)(Outside NYC)(Outside NYC)(Outside NYC)

800

750

700

650

600

550550 500

450

400

350350

300

2004-05 2009-10 After

Proposed Freeze

$755M

62% Increase

$465M

-38-

Mandate Relief and Local Savings Measures

� New pension tier will provide substantial savings over the long term for localities.

� School districts would receive full Wicks exemption for five years. For NYC, would raise Wicks Law threshold from $3 million to $10 millionmillion.

� Provides greater contracting and procurement flexibility for local governmentsgovernments.

� Advances Commission on Local Government Efficiency reforms. Simpplifies pprocess for consolidatingg local ggovernments, reforms special districts, and removes legal barriers to allow more shared services.

-39-

Critical Investments

Targeted Investments in a Time of Economic Difficulty

� Increase Basic Welfare Grant ($109 million by 2012-13)

� Establish NY HELPs Student Loan Program ($350 million)

� Extend HEAL New York Capital Grants ($650 million over Two Years)

� Streamline Access to Public Health Care Coverage ($5.0 million)

� Provide Food Bank Funding ($4.4 million)

� Provide Lead Poisoning Prevention Funding ($2.5 million)

� Establish New York Growth, Achievement and Investment Strategy (GAINS)

Grant Program ($50 million)

� Expand Research and Development Tax Credits ($50 million by 2012-13)13)Expand Research and Development Tax Credits ($50 million by 2012

� Increase Support for Veterans Counseling and Services ($1.1 million)

� Increase Funding for Volunteer Centers ($500,000)

-41-

A Foundation for Changing the WayA Foundation for Changing the Way

State Government Does Business

p

600

700 $610M

(Projected)

500

$355M

300

400

$338M

200

Empire Zones

$338M (With Reforms)

0

100

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Expenditures

Empire Zone Reform

� Reform: Requires all 9,800 current participants in the prp oograg am

toto meeteet 200:1benefit/cost standard.

� New Investment: Establish a new ESDCESDC grantt program and d R&D tax credits using a portion of savings that accrue – $$100 million when fulleffective.

yy

�

t Sunset

i : Empire Zone program

sunsets in J 2011June 2011.

-43-

Merge Performing Arts Agencies

Merge Anti-fraud Agencies

Merge Land Use Agencies Merge/Integrate Economic Development Agencies

Theater Institute

The Egg Welfare

Inspector General

Medicaid Inspector General

NE Queens Preserv.

Dept. of State

Hudson River

Greenway

Dept. of Economic Develop.

ESDC NYSTAR

The Egg Medicaid Inspector General

Dept. of State

ESDC/ DED

State Employ.

Relations

Dept. of Taxation and Finance Hosts Operations of Office of

Real Property Services

Division of the Lottery Hosts Operations of Racing and

Wagering Board

Merge Employment Relations Agencies

Relations Board

Public Employ.

Relations Board

Public Employ.

Relations Board

Dept. of Tax and Finance

ORPS Div. Of Lottery

Racing and Wagering

Agency Consolidations/Integration

-44-

Facility Closures

� DOCS: Close four prisoncamps, several annexes. Prisonpopulation has declined by over 11,000 or 15 percent comparedto 1999.

� OCFS: Close six, downsize two youth facilities. Close threeevening reporting centers. Affected youth facilities have averagge vacancyy rate of 63 percent.

� OMH: Eliminate 450 beds from inppatient ppsyychiatric system, moving patients tomore appropriate settings.

� OAS ASO S S: Addictio

CCloseose Maanhaattaan n Treatment Center.

DOCS Weekly Prison PopulationDOCS Weekly Prison Population

74,000 71,538

72,000

70,000

68,000

66,000

64,000

62,000

60 00060,000

15% Decrease

60,47258,000

-45-

,

Employee with $50,000 Salary in 03Employee with $50,000 Salary in 03--0404 after Proposed 09after Proposed 09--10 Action10 Action

65,000

55 000 57,000 59,000 61,000 63,000

$52 659 $54,239

$56,690 $58,391 $58,391

$60,727

47,000 49,000 51,000 53,000 55,000

$50,000 $51,250

$52,659

45,000 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11

2.5

%

2.7

5%

3.0

%

3.0

%

3.0

%

4.0

%

+$800 Bonus

State Workforce

Governor Paterson continues his call for a partnership with public employee unions to lower cost of state workforce.

� Eliminate scheduled 2009-10 general salary increase.

� Defer five days worth of salary� Defer five days worth of salary payments

Average state employee salary: benefits$62,$62 453 plus generous 453 plus generous benefits

General salary increases of 25 percent scheduled from 2003-04 to 2010-11. Would still receive 22 ppercent raise compared to 2003-04 under Executive Budget proposal.

-46-

199,400

196,292

State Workforce (FTEs)State Workforce (FTEs)

199,754 200,000

198 000198,000

195,526196,000

194,000

191,391192,000

190,000 188,931

187,,365188 000188,000

186,000 03-04 04-05 05-06 06-07 07-08 08-09 09-10

State Workforce

� In 2009-10, state

b y 3,108 and workforce would

ld t ttaldecline

b 3 108 d would to l 196,292.

� Would still � representWould still represent increase of 8,927 compared to 2003-04.

20092009-10 10 ddecli� line iinclluddes estimated 521 layoffs.Layoffs primarily limited to agency consolidations,to agency consolidations, facility closures, programeliminations.

-47-

;

Pension Reform

Tier IVTier IV

1990 & 1994

L

d i i

Tier VTier V

R t i i l1990 & 1994: Lowered minimum retirement age for public employee from 62 to 55.

2000: Removed employee’s 3

Returns minimum employee retirement age to 62.

ib i f 2000: Removed employee s 3 percent contribution after ten years of service.

Restores 3 percent contribution for entire length of employee’s service.

1998: Lowered threshold for 21998: Lowered threshold for 2 percent “multiplier” to 20 years of service.

Restores original threshold for 2 percent multiplier: 25 years of service.

1998: Lowered required years of Restores 10-year service

Overtime compensation used to calculate pension benefit; allows

New Requirement: Excludes overtime when calculating pension

service to draw pension from 10 to 5.

requirement to draw pension.

-48-

p salary “spiking” at end of service.

g p benefit.